Transaction costs refer to the costs incurred in making an economic exchange. There are several types of transaction costs including search costs, negotiation costs, costs of enforcing property rights, and influence costs. Licensing processes can also incur high transaction costs due to bureaucracy and complex requirements. Underground economic activities that are not reported officially also impose transaction costs and can grow due to factors like an unrealistic tax burden, imperfect labor laws, and difficulties in obtaining business approvals and information. Proposals to reduce informal economic activities and their transaction costs include simplifying laws, decentralizing government power, deregulating to increase individual accountability, and improving transparency around new legislation.

1. Transaction costs and related issues

2. What is transaction cost?
• In economics and related disciplines, a transaction cost is a
cost incurred in making an economic exchange (restated: the
cost of participating in a market)

3. Types of transaction costs
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costs of searching, processing and storage of information;
costs of negotiating;
costs of certification and protection of property rights;
costs associated with the emission activity of the enterprise;
influence costs, etc.

4. Influence costs
1. The first is the MPC- mandatory pension
contributions.
2. Next deductions is personal income tax ( PIT ).

5. Costs of coordination of construction projects
• Long- term coordination of the project of construction of any complexity;
• Burocracy;
• The high financial costs
• 10% of the construction costs - an average of the purchase of land;
• 0.5-2% - for approval of the project;
• In case of need to develop site design - 20-30 %;
• Informal costs of coordination of the project may reach 20-50 % of the
cost of developing and official approval.

6. Licensing
• In most cases , to obtain a license you need to provide a large number of
documents , in addition to the main list of documents
• Bureaucracy;
• Complex hierarchy;
• No fiscal loosening

7. Underground economy
Underground economy – legal or illegal production of goods
and services, as well as redistribution of incomes and assets which
are not reflected in official statistics.
Three components of underground economy
• Incomes and property are held away from taxification by major and
minor institutions of real sector.
• Private household not recorded by the government
• All types of illegal business (drug dealing, illegal
trafficking, prostitution, illegal production of alcohol and cigarettes
and etc).

8. The main causes of the informal economy in
Kazakhstan:
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Unrealistically high tax burden;
Imperfect labor legislation;
Problems with the registration of business;
Difficulties in obtaining the necessary official information;
The rigidity of the administration and enforcement of laws and
regulations.

9. Objective and subjective reasons of growth of the
underground economy in countries with transition economy
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Objective factors:
Rapid and cardinal way of economic and public reforms
incompleteness of legal base due to gap between legislation and
reforms temps
insufficient work experience of public authorities, as well as
entrepreneurs in conditions of transition economy
Rapid increase of number of enterprises and individual
entrepreneurs
Not reliable financial statement of enterprises, insufficient level of
book-keeping discipline

10. Subjective factors:
• Significant level of corruptness of authorities
• Ineffective measures against organized crime
Illegal economic activity includes :
• Production, sale and distribution of goods and services prohibited
by law;
• Production activity which is generally legal but in case of absence
of license

11. Hidden activity concealed from public
authorities for various reasons:
• in order to avoid the payment of income tax, value added tax
or other taxes;
• in order to avoid payment of social security contributions;
• to conceal violations of certain legal standards such as
minimum wages, maximum duration of working hours, safety
standards, health standards, etc.;
• avoid certain administrative procedures, such as completing
statistical questionnaires or other forms of reporting.

12. Loses due to underground economy:
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reduction in tax revenues as a republican and local;
deformation of the structure of consumption.
activities in areas specifically prohibited by law.
as shadow economic activity is illegal , part of the revenue is
spent on bribery of public officials, which is one of the causes
of corruption and an important factor in society.

13. The informal sector of the economy is:
• It is an informal proceeding taking place in the framework of
the household sector and the informal sector.
• Units that produce goods and services primarily for the
purpose of providing jobs and income of the persons
concerned (by ILO).

14. 70
The share of the shadow economy in the countries of the
Commonwealth of Independent States (CIS) and the Baltic
States in GDP,%
60
50
40
Series1
30
20
10
0
Грузия
Азербайджан
Молдавия
Латвия
Литва
Казахстан
Белоруссия

15. The share of the non-observed economy in GDP in the Republic of
Kazakhstan
2007
The share of non-observed economy in
GDP, total, including % :
informal
hidden
The share of non-observed economy of
construction in GDP,% including:
informal
hidden
2008
2009
2010
2011
23,9
22,6
21,6
20,7
20,2
14,2
12,8
11,6
9,3
8,7
9,7
9,8
10
11,4
11,5
1,8
1,8
2,3
2,4
2,2
1,2
0,9
0,6
0,4
0,4
0,6
0,9
1,7
2
1,8

16. Proposals to suppress informal economic activities:
• Simplification , i.e. optimizing the functioning of legal institutions by
eliminating duplicative and unnecessary laws;
• Decentralization , i.e. transfer of legislative and administrative
responsibilities from central to regional governments , in order to bring
power to the real and pressing problems of life ;
• Deregulation , i.e. increase accountability and opportunities for individuals
and narrowing them to the state.
• Publication of law drafts for public discussion;
• Analysis of the bills in terms of cost benefit, in order to exert a disciplining
effect on the government and reject the flawed bills before they are
published ;