Impact of the Shadow Activity on Social and Economic Relationships, Income Level and Welfare of the Population

Khaibat Magomedtagirovna Musaeva*

Impact of the Shadow Activity on Social and Economic Relationships, Income Level and Welfare of the Population.

The main purpose of the literature review is an analysis of the impact of shadow activity on social and economic relations and the welfare of the population. The scientific novelty of the research is in the development and realization of the model of interaction of the state and population as a factor contributing to the shadow economic activity.

A taxpayer has to make a choice: he can maintain the volume of the hidden incomes or increase them by decreasing the amount of revenues to the state budget. The increase of the hidden incomes by all taxpayers will decrease significantly the budget revenues and will lead to the decrease of volume of the generated state public goods that will decrease the individual utility functions of the taxpayers. Besides, if the shadow economy grows, the state will experience a deficit of resources for
the full financing of the provided budget expenses and use the borrowings which will further increase the state debt. This, at the end, will also lead to a decrease in the welfare of the population.
And, alternatively, the increase in the tax revenues in the budget system, as a rule, increases the volume of the public goods generated by the state.

The coefficient of the specific weight of the tax revenues in the utility function of the state is a positive value, the growth of the tax revenues increases the utility function of the state, all parameters being equal.

Soc Behav Res Pract Open J. 2017; 2(1): 27-32. doi: 10.17140/SBRPOJ-2-109

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