Theoretical Basis of The Shadow Economy and its Relationship with Fiscal Policy

This article provides an in-depth analysis of the theoretical foundations of the shadow economy and its relationship with fiscal policy in transition economies such as Uzbekistan. Based on literature and empirical data, it is determined that the shadow economy accounts for 11.3-11.8% of GDP globally, 34% in Uzbekistan, and increases the budget deficit by 15-20%. Using the Laffer curve and MIMIC models, the impact of high tax burden and institutional weakness is assessed and an optimal tax rate is proposed. The article examines the evolution of the shadow economy under the influence of the pandemic, digital technologies, and cultural factors, and provides practical recommendations for Uzbekistan on institutional reforms, digitalization, and increasing tax culture.

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