Shadow Economy of the Middle East and Assessment of the Effectiveness of Measures for Taxation of Hidden Income

Objectives: The study aims to analyze the shadow economy in Middle Eastern countries, exploring its impact on socio-economic development and fiscal policy. It seeks to evaluate taxation measures for hidden income and propose strategies to mitigate shadow economy activities. Methods: The research employs analysis and mathematical modeling to examine the relationship between the shadow economy and fiscal policy. A regression model was constructed to study the dependence of tax revenue effectiveness on the strength of legal regulations, with 82% of changes in tax revenues explained by changes in legal measures. Results: The findings reveal an inverse relationship between the shadow economy's size and the effectiveness of fiscal policies in Middle Eastern countries. The persistence of shadow economic activities undermines tax revenues, while poor living standards, poverty, and limited social development further exacerbate the issue. The study identifies key areas for improvement, such as broadening the tax base, increasing tax rates, legalizing income, and regulating informal activities. Conclusion: The shadow economy significantly hampers socio-economic development in the Middle East. Strengthening fiscal policy through better legal frameworks, effective taxation measures, and regulation of informal economic activities is essential for reducing the shadow economy's size and fostering sustainable growth in the region.