What is it about?

The digitalization of government services through information and communication technology (ICT) development and e‐government has important implications for curbing the shadow economy. This study empirically aims to fill this gap by employing unbalanced panel data from 42 African countries from 2003 to 2016 and the fixed effect estimation technique to assess the digitalization–shadow economy nexus. We start by drawing from modernization theory to theorize that digitalization in African economies represents an augmentation of public service delivery and a channel through which the size of informal economic activities in the continent can be reduced.

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Why is it important?

We investigate the relationship between digitalization and the shadow economy in 42 African countries using unbalanced panel data from 2003 to 2016. We show compelling evidence that digitalization is associated with a decrease in the size of the shadow economy in Africa. However, evidence of a larger influence is driven by the availability of telecommunications infrastructure and the expansion of government online services. Our findings suggest that policymakers should invest more in digital technology to formalize Africa's hidden economic activity, particularly to fill the post‐COVID‐19 financing gap.

Perspectives

It was a pleasure to write this article with a co-author with whom I have worked for many years. A large untaxed, unreported and unregulated shadow economy is problematic for society in general and the government in particular, as it limits the capacity of government to mobilize tax revenues, reduces the provision to public services and distorts macroeconomic policies.

HARUNA EMMANUEL
Kobe Daigaku

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This page is a summary of: Does digitalization limit the proliferation of the shadow economy in African countries? An in‐depth panel analysis, African Development Review, July 2022, Wiley, DOI: 10.1111/1467-8268.12653.
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