The Importance of the Payment Methods on the Size of the Shadow Economy: Cross-Country Evidence

Authors : Hüseyin Safa ÜNAL, Cüneyt KOYUNCU

Pages : 249-258

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Publication Date : 2019-03-01

Article Type : Research Paper

Abstract :This study investigates the effect of debit and credit card ownership, checks, and electronic payments on the size of the shadow economy. Potential effects of holding a bank account or having an account in a financial institution on the size of the shadow economy is another aspect of the study. For this purpose, MIMIC model estimates of the size of the shadow economy as percentage of GDP are used as the shadow economy indicator. In addition, data on the percentages of debit card users, credit card users, checks and electronic payments used to make payments, and account ownership are utilized as the real or potential source of formal transactions. The estimation results indicate that debit, credit card, and account ownership have a strong negative effect on the size of the shadow economy. Checks and electronic payments that are realized in the past 12 months result in decrease in the size of the shadow economy as well. While tax revenue and corruption are in a positive relationship with the size of the shadow economy, coefficient of the labor force participation rate is not statistically significant.
Keywords : Shadow economy, cross section study, payment methods, account ownership, debit card ownership, credit card ownership