ABSTRACT
In the context of the economic crisis in the country, the decline in the level of material well-being and social protection of the population, the problem of income shadowing, as the main component of reducing the level of social protection in the country, increasing the level of its economic inequality, becomes especially relevant. Nowadays, the shadow economy is one of the threats of economic development of the country and one of the main obstacles of its social development. One of the biggest negative effects of the shadow economy on the level of social development of the country is the evasion of social security contributions, which leads to a significant decrease in funding for programs and measures of social security of the population, problems with 136social benefits, pensions, unemployment insurance, health insurance, etc. Shadowing the economy significantly reduces the pace of reform of health care, education, social protection, etc. This chapter examines the relationship between shadow economy and the level of the social inequality compare magnitudes of the effects of its interaction among transition and emerging countries. In order to test the hypotheses about the negative impact of the shadow economy on the level of social inequality in the country, empirical models with interaction terms were presented: with Gini index, the ratio of the average income of the richest 10% to the poorest 10%, the ratio of the average income of the richest 20% to the poorest 20% as dependent variables, and inequality-adjusted Human Development Index. Based on the comparison of indicators of social inequality and the shadow economy, the authors distinguish clusters of countries by the nature and direction of the relationship between the analyzed indices. Empirical calculations have proved the high impact of the shadow economy on the indicators of social development of the country. All indices are statistically significant at the level of 1%, 5%, and 10% respectively. Based on the panel data regression models, groups of indicators, which have a linear and non-linear relationship with shadow economy, have been defined. The scientific contribution of the research consists in the fact that the current studies regarding the impact of the level of shadow economy on the level of the social inequality indicators are fragmentary. This study allowed the authors to conclude on the need to take into account the level of shadowing of the economy in the process of developing programs and measures to improve the level of social development of the country, reduce the volume of economic and social inequality of the population, etc.
