The Impact of the Grey Zone on the Economy in Poland

Abstract

Objective: This study analyzes the phenomenon of the grey zone in Poland and identifies the tax gap in Poland caused by its development. This raises the question of the extent to which the shadow economy affects the Polish economy, and in particular its contribution to the tax gap.

Research Design & Methods: The article is based on grey zone data in the Polish economy. The data was obtained from the EY Economic Analysis Team report as well as from the CASE report for the European Commission on the VAT gap.

Findings: The study shows that the impact of the grey zone on the economy is multi-faceted. The growth of the grey zone is largely due to the government’s mismanagement of economic policy. In turn, the reason for the reduction in the grey zone in Poland is the reduction in the amount of tax fraud through the use of better government measures and an increase in cashless transactions. The results show that although the grey zone in Poland has been increasing since 2019, it remains at a similar level to before. By contrast, since 2015 the tax gap has reduced by more than 20%.

Implications / Recommendations: The study shows that in order to reduce the negative phenomenon of the grey zone in the economy, effective measures should be taken through the application of appropriate economic policies. The actions of the government should be focused on eliminating systemic factors that favour activities which are not officially registered. It is through the development of unregistered activities that the government loses tax revenue.

Contribution: The article contributes to the literature on the changing size of the grey zone in Poland over the last decade. The analysis enhances our understanding of how the impact of this phenomenon on the Polish economy changed in recent years.