The Shadow Economy in Azerbaijan: Size and Causes

Since the collapse of the Soviet Union, the transition economies of the Commonwealth of Independent States (CIS) have kept one of the negative features of the Soviet economy – the informal sector. Despite the shift from command to market economy, the informal sector has proved remarkably persistent, with significant ramifications for policies in areas as diverse as social welfare, taxation and business development. In considering the social and policy impact of illegal activities stemming from the informal economy, it is very important to have accurate and up-to-date information, not only on its size, but also on its nature, distribution, causes and functions. This research paper aims to supply this information and to suggest policy measures to combat the shadow economy in today’s Azerbaijan. This research therefore has the following two specific objectives: To determine the present size of the shadow economy in Azerbaijan and to determine its nature and cause.