Empirical evidence on the roles of financial technology products on the shadow economy: a comparative analysis between advanced, emerging and developing countries

Abstract

The shadow economy, which can be defined as undeclared economic activities carried out in secret from public authorities,, and that cause negativities such as tax losses outside of official economic activities, has become a part of the economic activities of both developed and developing countries. The shadow economy literature bears witness to very different findings within the framework of national income levels, and this encourages researchers to address the issue from different perspectives with further studies. This study examines the effects of financial technology products, inflation, and the rule of law on the shadow economy in advanced, emerging and developing countries by using the method of the moment-quantile regression model and different robustness control methods. The most interesting finding from the study is that the effect of financial technology products on the shadow economy is asymmetric in both country groups. Accordingly, while automated teller machine use reduces the shadow economy in advanced countries, it increases it in emerging and developing countries. However, inflation has an increasing effect on the shadow economy in both groups, while the rule of law has a decreasing effect. It can be said that these empirical results provide policy implications that will help decision-makers develop strategies in the fight against the shadow economy.