Tigran Manukyan

Type of the article: Research Article

Abstract
Transition economies combine large informal sectors with constrained fiscal capacity, and many have turned to digital tax administration to raise revenue and curb informality. This study assesses digital tax administration as a fiscal-governance innovation in 25 transition economies, asking whether it increases corporate tax revenue and reduces the informal economy, and whether these effects are linked. Using a balanced annual panel for 2008–2022 (375 country-years) and fixed-effects models, it proxies digital administration by the United Nations Online Service Index – a broad measure of digital-government maturity – and tests mediation between revenue and informality. A higher Online Service Index is robustly associated with higher corporate tax revenue (β = 0.89, p < 0.01) – an increase of about 0.89 percentage points of GDP, roughly 41% of the sample mean – that holds across alternative specifications including two-way fixed effects, alternative constructions of the index, and sub-periods. Its association with a smaller informal economy (β = −3.62, p < 0.05) is fragile: it is concentrated in the pandemic years 2020–2021, turns insignificant once they are excluded (β = −1.54, p = 0.12), and does not survive two-way fixed effects or all alternative informality measures. An exploratory decomposition finds no evidence that this association runs through corporate tax revenue: the indirect path is insignificant (about 16% of the total effect), indicating parallel rather than sequential channels. Digitalizing tax administration is associated with a reliable corporate-revenue dividend, whereas the informality association is conditional, pandemic-bound, and does not operate through tax revenue.

Acknowledgment
This article was prepared based on the results of a study funded by the Ministry of Education and Science of Ukraine entitled “GovTech for Ukraine: A Digital, Secure, Transparent, and Equitable State in Times of War and Post-War Reconstruction” (registration number: 0126U000544).