Regional Estimates of the Shadow Economy in Lithuania

The article is very topical and of high scientific value as it covers the problems of regional exclusion emphasized in the EU strategic documents. Regions suffer from social and economic exclusion, which, in turn, induces high unemployment and crime rates, and leads to the flourishing of smuggling. The aim of this article is to estimate the level of the shadow economy in the regions of Lithuania over the period 2012 to 2016. The topic is very relevant to such transition economies as Lithuania with huge separation between regions and large cities. Deep social problems in regions, lack of job places and absence of investment along with high emigration rate and intensive population's movement to the largest cities lead to the growth of crime rate and high scope of the shadow economy. Calculations performed under the MIMIC model have shown that the share of indirect taxes, average income, the cases of cigarette smuggling, population of women per 1000 men, the number of criminal offences, children in social risk families and the number of tourists are the main causes for the emergence and growth/decline of the shadow economy level. The novelty of the article lies in the calculations that reveal a significantly higher level of the shadow economy in the regions than at the country level. Therefore, it is recommended to make calculations at the regional level in order to select measures to more effectively fight with the "shadow". Identified reasons allow formulating the following recommendations for responsible authorities: increase efficiency in tax system, since current excise tax policy has a positive impact on the level of poverty, especially at regional level, deepening of social problems, which as a result contribute to the growth of shadow economy; encourage women occupancy and emancipation and attract funding from national and international projects, to promote equal rights in researched regions; increase the level of attractiveness and security level in cities, promote FDI to cities, and effectively use money from the EU Structural Funds.