Shadow economy practices in Bulgaria – a challenge for the financial policy of the state

Abstract

The global financial and economic crisis in the beginning of this century resulted in certain cataclysms with destructive effects on the government’s financial policy. Increasing government budget deficits, strikingly inadequate social status and deterioration of the basic macroeconomic indicators measuring the «pulse» of the national and world economy once again brought forward the issue of the scale of the shadow economy. The presence of shadow economy is an indicator for the lack of trust in government’s financial policy and the inefficiency of the national economic policy. At the same time shadow economy practices affect negatively the economic growth, the efficiency of labour, the competitiveness and the economic and financial policy of the state. For various reasons, despite the importance and complexity of this problem, we still lack an adequate public strategy for successfully counteract it in the long run. In this context, the main goal of the study is to analyze the extent of the shadow economy and the issues related thereto as well as examine its actual manifestations in Bulgaria and propose measures to mitigate it.