The shadow economy can be defined as economic activities that escape detection in the official estimates of the Gross Domestic Product (GDP). A larger size of the informal sector poses a significant challenge for policymaking as it reduces the reliability of official estimators and increases the likelihood of adopting ineffective policies. Furthermore, the shadow economy may also influence the allocation of resources. The phenomenon is particularly important in the developing world. This paper aims to investigate a possible contribution of e-Government (eGov) to mitigate the problem of the shadow economy. We argue that the implementation of eGov will allow the government to reduce the administrative burden costs, reduce tax evasion, and allow citizens to act as whistle-blowers, all of which may eventually lower the size of the shadow activities. Since the implementation of eGov corresponds to the stage of infrastructure development in the Information and Communications Technologies (ICTs), the diffusion of eGov also requires particular threshold points by which the impact can only be seen. We investigate the data of 147 countries during the period 2003–2013, where the data on estimated shadow economy (based on [1]) and eGov index (based on [2]) are both available. We found that increasing the eGov index significantly reduces the size of the shadow economy. Moreover, the marginal impact is greater in the developed and higher income countries. This sheds a light on the importance to achieve a sufficient level of critical mass in eGov infrastructure before countries are able to reap the benefits of the initiatives.