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?

22 pages
Read Article

Loading next page...
 
/lp/wiley/fighting-tax-evasion-by-discouraging-the-use-of-cash-4Q07ELJYue
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: ; ; ; ;

References

  • Income tax evasion: a theoretical analysis
    Allingham, M. G.; Sandmo, A.
  • Why do people pay taxes?
    Alm, J.; McClelland, G. H.; Schulze, W. D.
  • Tax compliance
    Andreoni, J.; Erard, B.; Feinstein, J.
  • Optimal sales tax rebates and tax enforcement consumers
    Arbex, M.; Mattos, E.
  • Taxing cash
    Benshalom, I.
  • The high costs of controlling GST and VAT evasion
    Berhan, B. A.; Jenkins, G. P.
  • Joint tax evasion
    Boadway, R.; Marceau, N.; Mongrain, S.
  • Stricter enforcement may increase tax evasion
    Borck, R.
  • Negative nominal interest rates: three ways to overcome the zero lower bound
    Buiter, W. H.
  • Overcoming the zero bound on nominal interest rates with negative interest on currency: Gesell's solution
    Buiter, W. H.; Panigirtzoglou, N.
  • The 2012 Update Report to the Study to Quantify and Analyse the VAT Gap in the EU‐27 Member States
  • On a simple rule for the optimal inflation rate in second best taxation
    Chamley, C.
  • Collaborative tax evasion and social norms: why deterrence does not work
    Chang, J‐J.; Lai, C‐C.
  • Cheating the Government: The Economics of Evasion
    Cowell, F.
  • The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies?
    Drehmann, M.; Goodhart, C.; Krueger, M.
  • Shaping tax norms through lotteries
    Fabbri, M.
  • Joint income‐tax and VAT‐chain evasion
    Fedeli, S.; Forte, F.
  • Trust breeds trust: how taxpayers are treated
    Feld, L. P.; Frey, B. S.
  • The Optimum Quantity of Money and Other Essays
    Friedman, M.
  • The tax evasion social multiplier: evidence from Italy
    Galbiati, R.; Zanella, G.
  • The move towards a cashless society: a closer look at payment instrument economics
    Garcia‐Swartz, D. D.; Hahn, R. W.; Layne‐Farrar, A.
  • Overcoming the zero bound on interest rate policy
    Goodfriend, M.
  • Individual morality and reputation costs as deterrents to tax evasion
    Gordon, J. P. P.
  • Evading taxes by selling for cash
    Gordon, J. P. P.
  • Tax structure in developing countries: many puzzles and a possible explanation
    Gordon, R. H.; Li, W.
  • Referendums, trust and tax evasion
    Hug, S.; Spörri, F.
  • Realizing the gains from electronic payments: costs, pricing, and payment choice
    Humphrey, D.; Kim, M.; Vale, B.
  • A quantitative analysis of inflation as a tax on the underground economy
    Koreshkova, T.
  • It may be time for the Fed to go negative
    Mankiw, G.
  • Handbook of Public Finance
    Marchese, C.
  • Rewarding the consumer for curbing the evasion of commodity taxes?
    Marchese, C.
  • A model of the demand for money by firms
    Miller, M. H.; Orr, D.
  • Cash businesses and tax evasion
    Morse, S.; Karlinsky, S.; Bankman, J.
  • A model of tax evasion with group conformity and social customs
    Myles, G.; Naylor, R. A.
  • Tax evasion and the optimal inflation tax
    Nicolini, J. P.
  • Tax evasion, civic duty and the law abiding citizen
    Orviska, M.; Hudson, J.
  • Inflation in the theory of public finance
    Phelps, E. S.
  • Itemised deductions: a device to reduce tax evasion
    Piolatto, A.
  • NBER Macroeconomics Annual
    Rogoff, K.
  • The theory of tax evasion: a retrospective view
    Sandmo, A.
  • Cheating ourselves: the economics of tax evasion
    Slemrod, J.
  • Handbook of Public Economics
    Slemrod, J.; Yitzhaki, S.
  • Social norms and conditional cooperative taxpayers
    Traxler, C.
  • Cost‐based pricing of payment instruments: the state of the debate
    Hove, L.
  • Handbook of Monetary Economics
    Woodford, M.
  • A note on “Income tax evasion: a theoretical analysis”
    Yitzhaki, S.
  • On the excess burden of tax evasion
    Yitzhaki, S.

You’re reading a free preview. Subscribe to read the entire article.

Try 2 weeks free now

DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

or browse the journals available

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off

Sign up
for free
Start 14 day
Free Trial