Population in the shadow market: Petty corruption and unpaid taxes

Abstract

The subject matter of the article is a problem that is relevant for developing economies. A legal foundation for economy operation development is consolidated slowly; instead, an illegal flow of money and corruption the population gets actively involved into are expanding. According to official records, the number of unaccounted employees who avoid taxation has exceeded 15 million in Russia. When studying this phenomenon, researchers mainly refer to shadow economy whose scale and financial damage inflicted on the country are known. Population masses involved in the illegal flow of money operate in the shadows, since the latency of corruption processes makes it difficult to explore this phenomenon and invokes sociological methods along with economic methods. The purpose of the article is to show the structure of Russian population’s involvement in the illegal cash flow turnover in terms of three aspects: presence in the shadow economy, involvement in corrupt practices, and concealment of a fraction of income aiming to non-payment of taxes. When solving these problems, the authors were to use the method of applied sociology with a subsequent transformation of aggregated information into empirical indicators by economic methods. Based on the research, the authors have explored the structure and motivation of the population to participate in the illegal flow of money, calculated the aggregate economic damage from all types of population incomes that are not undocumented by revenue authorities. By revealing the latent structure of the illegal cash flow, the research findings enable to more accurately plan priority directions of efforts to be made by fiscal bodies to neutralize the population participation in illegal economic and financial activities.