O17 - Formal and Informal Sectors; Shadow Economy; Institutional ArrangementsReturn

The literature on economic uncertainty has focused on the effects of uncertainty on the formal economy. Still, it has not addressed a relationship between uncertainty and shadow economy until now, to our knowledge. Therefore, this paper analyses the dynamic relationship between economic policy uncertainty and the shadow economy using panel vector autoregression estimates exploiting a dataset for 21 countries from 1997-2018. The impulse response analyses in this context reveal a mutual interaction of policy uncertainty and the shadow economy. In this respect, not only is the shadow economy found to respond to shocks in economic policy uncertainty, but also the uncertainty in economic policy appears to increase by a response to shocks in the shadow economy, implying a feedback effect from informal economic activities towards uncertainty. This effect is also thought to be responsible for aggravating negative influences of uncertainty on formal economic activities.

The aim of the paper is to estimate the total tax evasion in the Czech Republic in 2008-2015. For this purpose, an analysis of non-observed economy as an alternative method of tax evasion estimation is used. The presented method works as follows: the detailed segmentation of non-observed economy enables to match various types of hidden or concealed income with corresponding liable taxes and therefore to estimate the amount of tax due. The results show that tax evasion is increasing in the Czech Republic (with the exception of 2012) reaching 71 bn CZK in 2008 and more than 120 bn CZK in 2015. This approach also allows us to divide the total tax evasion between direct and indirect taxes. From this point of view, the higher share belongs to direct taxes in the Czech Republic. This, however, may be caused by the nature of non-observed economy which does not cover all types of tax fraud, namely carousel frauds. That is why the presented estimates should be regarded as a bottom level of the total tax evasion in the Czech Republic.

The paper presents results of World Bank survey in 2005 undertaken within the project Doing Business, with special regard to the Czech Republic position. Doing business conditions are assessed particularly according to the regulation burden and its impacts on entrepreneurship. The structure follows ten indicators of doing business conditions covered in the survey in 2005: starting and closing a business, dealing with licenses, hiring and firing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts. The paper includes explanation of the specific features of the Czech Republic legislation, and already undertaken, recommended or prepared changes directed to improvement of most critical points. Moreover, there are presented the relations between regulation quality and other economic and institutional indicators: tax burden, economic freedom and corruption levels.

An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the demand equations, or at very least on knowledge of how these parameters are changing. We show that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable.

Badly defined institutional framework caused many problems of the Czech transition. Designers of the economic reform did not respect the importance of precisely functioning market institutions. No doubts that building institutions supports the functioning of markets. The article analyses why Czech economists and politicians did not understand the problem in the beginning and how they attempted to correct this initial mistake. The Czech (Slovak) economy was in a worse situation if compared with other central European countries because any private sector did not exist there before 1990. Both formal and informal institutions were built here in the green field. After politically sensitive problems with financial crime the building of institutions was accelerated in late 1990s. The process of re-building Czech market institutions continues within EU now.