Taxing Mobile Money: Theory and Evidence

Michael Barczay, Shafik Hebous, Fayçal Sawadogo and Jean-Francois Wen

No 12322, CESifo Working Paper Series from CESifo

Abstract: Mobile money has become a central digital alternative to traditional banking in developing countries, yet several African governments have introduced taxes on mobile money transactions. We develop a model that characterizes how such taxes affect payment choices and generate excess burden. The model predicts that taxation reduces mobile money use, with elasticities shaped by access to substitutes and transaction costs: banked users substitute into formal alternatives, while unbanked users face higher effective costs, making the tax regressive. Taxation also induces substitution into cash, raising informality. We empirically test these predictions using cross-country survey data and novel transaction-level data from Cameroon, the Central African Republic, and Mali. Results show sharp declines in mobile money usage, with stronger responses among the banked. Unbanked and rural users bear a disproportionate burden. We use the empirical estimates to gauge the excess burden of the tax, which we quantify at 35% of revenue - highlighting its significant efficiency cost alongside its regressive impact.

Keywords: mobile money tax; financial inclusion; transaction tax (search for similar items in EconPapers)
JEL-codes: E42 G20 H27 O16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12322

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