In the study, LASSO regression analysis is employed to analyze the impact of digitalization on the informal economy in Central and Eastern Europe by utilizing a dataset from 2005–2022 for 11 countries. The four models used for analysis provided strong and consistent evidence that the governance factors, particularly the rule of law, had the most significant (negative) impact on the size of the informal economy. In contrast, digitalization variables such as Mobile Cellular Subscriptions and Internet Usage, although stable across all models, displayed comparatively minor impacts. Not only were these findings consistent and robust, but they also emphasized the dominant role of governance structures over digital interventions in reducing informality. The study strongly suggests that future efforts to address the issue of the informal economy must include strengthening legal frameworks alongside promoting digital transformations, in order to make these more effective in addressing the informal economy.