Subject Informal dealings of small and medium-sized businesses threaten the economic security of the State. Thus, it is necessary to analyze the extent to which shadow transactions spread among SME, and outline recommendations to reshaping the institutional environment and subsequently decriminalize SME's activities. Objectives The research comprehensively studies key institutional characteristics of SME in the Russian Federation, identifies the extent to which shadow transactions are common to this community. The article provides basic recommendations for rearranging the institutional environment so as to curb the informal activities of SME. Methods The research applies methods of logic and statistical analysis. Results We examined key characteristics of SME development in Russia, its current state and operational issues of shadow dealings. Most small and medium-sized business are found to operate in the informal sector of economy, thereby signifying the overall inefficiency of the economy. Conclusions and Relevance Undermining the national economic security, high criminalization of SME is one of the main factors preventing the sector from contributing to the comprehensive economic result. Furthermore, the Russian economy will not be able to abandon the export-based model and adopt the innovation-driven one without addressing a set of issues to encourage the legal development of SME.
Keywords: SME, shadow economy, informal sector, business criminalization, economic security
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