Taxing Cash to Fight Collaborative Tax Evasion?

Giovanni Immordino and Francesco Flaviano Russo ()
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Francesco Flaviano Russo: Università di Napoli Federico II and CSEF

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We build a model of collaborative tax evasion where a buyer negotiates a price discount with a seller in exchange for not asking the receipt and paying cash, which eases tax evasion. Sellers and buyers are heterogeneous with respect to their honesty and to their cost of managing non cash payment instruments. We study the effect of two policy instruments, a tax rebate for the buyer that keeps the receipts and a tax on cash withdrawals (TCW), on tax evasion and government revenue. We find that a mix of these two instruments can reduce tax evasion and increase revenue. The TCW is effective only if sufficiently high, and it must be higher the higher the tax evasion in the country and the bigger the mass of individuals that typically pays in cash. We discuss the implementation problems of the TCW and we suggest how to partially overcome them.

Keywords: collaborative tax evasion; tax on cash (search for similar items in EconPapers)
JEL-codes: H21 O17 (search for similar items in EconPapers)
Date: 2014-01-02
New Economics Papers: this item is included in nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Fiscal Studies, 2018, 39, 343-364, with the title "Tax Evasion and the Tax on Cash"

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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:351

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