Fighting Tax Evasion by Discouraging the Use of Cash?

Fighting Tax Evasion by Discouraging the Use of Cash? We propose a bargaining model of tax evasion with a seller that offers a price discount to a buyer in exchange for a cash payment without a receipt, which allows tax evasion. We study the effect on evasion and government revenue of two policy instruments: a tax on cash withdrawals (TCW), which imposes a cost on the buyers who pay cash, and a tax rebate conditional on having the receipt. The tax rebate reduces evasion but it is costly if tax evasion is low. The TCW reduces evasion only if it is set at a sufficiently high rate, which must be higher the larger is the mass of cash users. We also show that the implementation of a TCW, which poses several challenges, is easier if the cost of cash hoarding is high. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Fiscal Studies Wiley

Fighting Tax Evasion by Discouraging the Use of Cash?

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Publisher
Wiley
Copyright
Fiscal Studies © 2018 Institute for Fiscal Studies
ISSN
0143-5671
eISSN
1475-5890
D.O.I.
10.1111/1475-5890.12160
Publisher site
See Article on Publisher Site

Abstract

We propose a bargaining model of tax evasion with a seller that offers a price discount to a buyer in exchange for a cash payment without a receipt, which allows tax evasion. We study the effect on evasion and government revenue of two policy instruments: a tax on cash withdrawals (TCW), which imposes a cost on the buyers who pay cash, and a tax rebate conditional on having the receipt. The tax rebate reduces evasion but it is costly if tax evasion is low. The TCW reduces evasion only if it is set at a sufficiently high rate, which must be higher the larger is the mass of cash users. We also show that the implementation of a TCW, which poses several challenges, is easier if the cost of cash hoarding is high.

Journal

Fiscal Studies – Wiley

Published: Jan 1, 2018

Keywords: ; ; ; ;

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