IMPACT OF DIGITALIZATION ON THE SHADOW ECONOMY CONTROLLING FOR GOVERNANCE QUALITY

Abstract

This study uses two models to examine the impact of digital transactions and government atomization on the informal economy, while controlling institutional quality and governance. The short panel data of 2014 & 2016 and unbalanced panel data from 2014 to 2020 are used in the models, respectively; 169 economies worldwide are selected for both models. Pooled OLS & fixed effects regression were applied, respectively, along with quantile regression. The findings suggest that governmental digitalization, e-payments, and economic integration have a negative effect on the shadow economy. While institutional & governance quality indicate that the effectiveness of digitalization can be achieved through a strong legal and governance system.