The Price of Traceability: E-Payments, Tax Compliance, and Policy

Burak Uras and Tulio Bouzas
Additional contact information
Tulio Bouzas: Tilburg University, https://tuliobouzas.github.io

No 2026_102, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: "Why do firms continue to rely on cash in economies where digital payments are widespread and electronic transaction costs are low? This paper shows that the an- swer lies in the interaction between payment technologies and tax enforcement. Us- ing randomized experimental evidence from Kenyan small and medium-sized firms, we establish that the adoption of electronic payments causally increases tax com- pliance by raising transaction traceability. Moreover, SME survey evidence shows that tax evasion is associated with cash discounts. Motivated by these findings, we develop a microfounded general equilibrium model in which heterogeneous firms choose prices, payment acceptance, and tax evasion jointly. Cash facilitates eva- sion but exposes buyers to transaction risk, while electronic payments are safer yet traceable by third parties. These trade-offs generate endogenous cash discounts, selective rejection of digital payments, and coexistence of payment instruments in equilibrium. The calibrated model shows that when electronic payments are non–interest-bearing, inflation increases cash usage and tax evasion, overturning the standard prediction that inflation reduces cash use. We characterize the op- timal policy mix and show that financial development, enforcement intensity, and inflation are tightly intertwined in maximizing government revenues and welfare."

Keywords: E-Money; Pricing Heterogeneity; Tax Compliance; Macro Policy (search for similar items in EconPapers)
JEL-codes: E44 G23 H26 (search for similar items in EconPapers)
Pages: 66
Date: 2026-02-13
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-iue, nep-mon, nep-pay and nep-pbe
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.36934/wecon:2026_102 Full text (application/pdf)

Related works:
Working Paper: The Price of Traceability: E-Payments, Tax Compliance, and Policy (2026)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wil:wileco:2026_102

Ordering information: This working paper can be ordered from

The price is Free.

Access Statistics for this paper

More papers in Department of Economics Working Papers from Department of Economics, Williams College Williamstown, MA 01267. Contact information at EDIRC.
Bibliographic data for series maintained by Greg Phelan ().