Keywords
budgetary policy
fiscal efficiency
tax digitalization
simplified taxation system
cashless payments
tax-to-GDP ratio
institutional capacity
economic formalization
How to Cite
Abstract
In the context of Ukraine’s structural economic transformation, combating the shadow economy emerges as a key vector of budgetary policy aimed at strengthening the state's fiscal capacity, reducing informal transactions, and enhancing institutional trust. The chronically high level of shadow economy in Ukraine (up to 35% of GDP) results in systemic fiscal losses and constrains the potential for post-war economic recovery. The purpose of this article is to identify effective budgetary policy instruments to reduce the shadow economy based on an analysis of Ukrainian realities and international practices, and to develop policy recommendations to improve fiscal transparency and sustainability in the context of post-war recovery and integration into the European tax framework. The study provides a quantitative assessment of GDP and tax revenue losses due to the shadow economy in 2005–2024, which exceeded USD 50 billion annually. It highlights a critical level of fiscal inefficiency – the tax-to-GDP ratio in 2024 was only 32.3% despite GDP growth to USD 190.7 billion. A comprehensive comparative analysis of the experiences of Lithuania, Estonia, Singapore, Poland, Indonesia, and Argentina identified structural drivers of successful formalization: digitalization of tax administration, restrictions on cash transactions, incentivized taxation, rejection of general amnesties, and enhanced fiscal accountability. An adaptive model is proposed for Ukraine, including reform of the simplified taxation system, the introduction of cash withdrawal limits, implementation of e-invoicing systems, creation of a fiscal office modeled on Poland’s KAS, expansion of the “Diia” platform as a tax interaction tool, and public campaigns to foster a culture of tax compliance. Reducing the shadow economy must become a strategic priority of Ukraine’s budgetary policy with clearly defined quantitative targets (≤20% of shadow GDP by 2030), institutionally embedded KPIs, and a cross-agency accountability system. Only through the synergy of digital infrastructure, institutional trust, and incentive-based mechanisms can the state secure a sustainable fiscal space for post-war reconstruction and integration into the European tax architecture.
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