THE DEGREE OF INFLUENCE OF TAX POLICY AND DIGITALIZATION ON THE DYNAMICS OF THE SHADOW SECTOR OF THE ECONOMY IN UKRAINE

Abstract

The study examines the impact of tax policy and digitalization on Ukraine’s shadow economy under martial law, highlighting the need to understand informal activity for fiscal stability, governance, and defense funding. It emphasizes attracting financial resources for state security and identifying shadow sector sources to meet international credit requirements and maintain infrastructure. Assessing the influence of taxes and digital tools enables reliable economic scenarios and supports national priorities, including accurate statistics for investors and optimized regional policies. The methodology uses a systematic approach, applying correlation and econometric methods to evaluate models and their limitations. Game theory criteria—Wald, Savage, and Hurwicz—help determine optimal de-shadowing strategies under uncertainty, macro shocks, and pessimistic expectations. Comparative analysis of tax burdens across legal entities, individuals, and self-employed persons considers external factors like inflation and digital administration tools. Results indicate that combining tax reform and digitalization is most effective in reducing the informal sector. Digital tools decrease information asymmetry, increase transaction transparency, and limit corruption, though cash-based settlements partly reduce the effect. Modeling shows that unified tax and digital strategies deliver the best outcomes across economic conditions, influencing legalization incentives and strengthening institutions. A clear inverse relationship exists between e-governance development and shadow economy share, highlighting the importance of fair tax distribution. Practically, the study provides policymakers and analysts with an evidence-based framework for reforms. Then a three-stage roadmap is proposed: tax amnesty and blockchain integration; progressive taxation with automated monitoring; and harmonization with EU standards. The generalized model, accounting for inflation and digitalization, serves as a predictive tool for informed decision-making, enhancing Ukraine’s fiscal efficiency and transparency.