LEGAL REGULATION AND FINANCIAL ASPECTS OF THE BUDGET PROCESS IN UKRAINE

Abstract

This article presents a comprehensive legal and financial study of the transformation of the budget process in Ukraine under the martial law regime during the period of 2024–2026. The relevance of the research is determined by the urgent need to ensure the state's financial sustainability and resilience amid an exponential growth in military and defense expenditures coupled with a significant contraction of the domestic tax base. The scientific novelty of the paper lies in the development of a formal mathematical model of structural fiscal entropy based on Claude Shannon's information theory, which serves as an objective quantitative metric to measure the uncertainty and level of diversification of the state's budget funding sources. Furthermore, the empirical methodology includes econometrical modeling utilizing a logistic regression framework in logit form. This econometric model quantitatively evaluates the impact of international grant assistance volumes and the structural rigidity of defense spending on the probability of successful and crisis-free execution of budget targets. The modeling results prove the presence of a pronounced crowding-out effect, where the mobilization of all domestic resources for defense limits the funding of socio-economic programs, thereby reducing the probability of crisis-free budget execution. From a legal perspective, the paper provides a thorough analysis of recent amendments to the Budget Code of Ukraine, focusing on the temporary suspension of statutory limits on budget deficits and sovereign debt, and the simplification of spending relocation procedures for the security sector. Special attention is dedicated to the centralization of the "military PIT" (personal income tax) from municipal budgets to the state budget's special fund, examining its financial consequences for local self-government. The study also justifies the legal and financial mechanisms of compensatory subventions and transfers designed to support vulnerable territorial communities in 2026. Ultimately, strategic recommendations are formulated, focusing on economic formalization (combating shadow salary schemes and gray imports), tax administration digitalization (such as "e-Excise" and online monitoring of gambling), corporate governance reforms, and the implementation of the Public Financial Management Reform Strategy for 2026–2030.