Tax Evasion, Shadow Economy, and Taxation System. Judicial Insights and Economic Assessments

Abstract The shadow economy is a widespread phenomenon, with a major impact on public finances. It should not be viewed strictly as an economic problem, as it raises a number of ethical, social, and governance concerns. Combating the underground economy cannot be achieved only through increased controls and higher fines. It requires a multifaceted approach, targeting the root causes of informal economic activities. In order to discourage illicit activities, more efficient institutions, a simpler and more transparent fiscal system, and better regulation are needed. In this paper, we present the negative effects of the shadow economy and the need to combat it, and also address the main determinants of the underground economy, as well as the strategies needed to reduce it. Tax evasion represents the quid pro quo of the fiscal system, lato sensu, and taxation technique, stricto sensu. In this paper, both a quantitative and qualitative overview of the connections between tax evasion and the shadow economy in the context of the taxation system are presented. The practical case studies presented and analyzed were designed to reveal the judicial problem of tax evasion and the economic implications of the shadow economy. The empirical aspects analyzed in the paper focus on a more comprehensive approach to a more equitable taxation system. The conclusions of this study highlight the need for a more comprehensive fiscal system environment, both in Romania and at the European level, with a special orientation on equitable taxation, reducing the taxpayer burden, and a more flexible and transparent taxation system.