Pecunia olet. Cash usage and the underground economy

Michele Giammatteo, Stefano Iezzi and Roberta Zizza

Journal of Economic Behavior & Organization, 2022, vol. 204, issue C, 107-127

Abstract: This paper explores the role of cash usage in feeding the underground economy by using a unique dataset that combines, at province level, official estimates of Italian firms’ underreporting with data on cash transactions drawn from the aggregate anti-money laundering reports filed to the Italian Financial Intelligence Unit (UIF) by banks. In order to derive causal evidence, we apply two different econometric strategies: an instrumental variable approach and a difference-in-difference approach, which exploits the change in the maximum threshold for cash transactions introduced in 2016, thereby providing a measure of the effect of such policy on tax evasion. We find that an increase in cash usage translates, other things being equal, into a higher level of underreporting by firms, and that raising the cash threshold in 2016 – a measure motivated by the objective of boosting spending – had the side effect of leading to a larger underground economy.

Keywords: Shadow economy; Tax evasion; Cash threshold; Bank branches; ATM; Cashless payments (search for similar items in EconPapers)
JEL-codes: E26 E42 H26 O17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:204:y:2022:i:c:p:107-127

DOI: 10.1016/j.jebo.2022.10.005

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