Cash thresholds, cash expenditure and tax evasion

Abstract

I investigate whether cash thresholds that forbid cash payments on big transactions are effective at reducing tax evasion. I find that the 1000 euros threshold implemented in Italy in 2011 induced a bigger cash expenditure reduction for the households with self employed members, and the more so in case they work in cash intensive sectors. With the help of a simple model, I show that this empirical evidence suggests a tax evasion reduction, and I compute the tax revenue increase implied by the empirical estimates. Calibrating the model, I also perform a counterfactual exercise to quantify the potential effects of lower thresholds.

Cashless Payments and Tax Evasion: Evidence From VAT Gaps in the EU

“…Although our study does not focus on whether these investments may lead to population-level, VAT compliance gap reductions detectable at conventional levels of statistical significance, our findings indicate that nearly costless behavioral changes in transaction payment norms such as the adoption of cashless payments may also yield significantly more tax revenues at a, presumably, significantly lower tax price to traditional tax enforcement strategies such as audits. Policies designed to increase e-money usage and decrease cash circulation such as those adopted in Italy, Greece or India are relevant steps into this direction (Hondroyiannis and Papaoikonomou, 2017;Sands et al, 2017;Danchev et al, 2020;Russo, 2022;Das et al, 2023). Future research could investigate more deeply whether a policy increasing e-money usage with the explicit aim to improve tax compliance has the same effects as the PHE policies studied in this paper.…”