The twin policy syndromes of shadow economy and income inequality are the defining features of an African environment. Thus, the question of whether the former aggravates or reduces the latter’s effects remains an empirical puzzle. This inquiry unravels the puzzle by examining the distributional impacts of shadow economy for a broad sample of 41 African economies for the period, 1991–2015. Employing a system generalized method of moments, the following findings are established. First, shadow economy-inequality widening hypothesis is consistently validated across the different inequality models. Second, shadow economy Kuznets hypothesis lent empirical credence through endorsement of a nonlinear relationship between shadow economy and income inequality. Third, the useful roles of pathdependent nature of income inequality, per capita Gross Domestic Product (GDP), financial development, and trade openness are hard to be ignored. Lastly, when an alternative relative net income share is used as a dependent variable, the empirical outcomes still retain the initial findings of shadow economy-inequality widening hypothesis and the shadow economy Kuznets hypothesis, respectively. In line with these empirical outcomes, policy implications are suggested.
Cite this article as: Bello Ajide, K. (2023). Distributional impacts of shadow economy in africa. Journal of Business Administration and Social Studies, 7(1), 8-18