Tax evasion policies and the demand for cash |
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| Institution: | 1. Department of Industrial Economics Strategy Research, Taishin Sercurities Investment Advisory, Taiwan;2. School of Business, Nanjing University of Information Science and Technology, China;3. Yangtze River Institute of International Digital Trade Innovation and Development, Nanjing University of Information Science and Technology, China;4. Institute of Economics, Academia Sinica, Taiwan;5. Department of Economics, National Cheng Chi University, Taiwan;6. Institute of Economics, National Sun Yat-Sen University, Taiwan;7. Department of Economics, National Taipei University, Taiwan |
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| Abstract: | This paper analyzes the relationship between tax evasion and the demand for cash by studying the effects of two measures to fight evasion: accessing taxpayers’ bank data and imposing thresholds for cash payments. We study the effects of these policies in Italy, where visibility of bank data and cash thresholds were recently increased. We show that both significantly affected cash holdings, which grew by about 1.5 percent of the GDP. Using unique high frequency data on cash operations and exploiting regional heterogeneity in tax evasion propensity, we find that accessing bank data pushes regions with higher propensity to evade taxes to convert more deposits into cash. On the contrary, higher cash thresholds do not increase cash holdings more in these regions. We rationalize the findings with a simple model of tax evasion and payment choices, where cash and deposits have different degrees of privacy. |
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