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Fiscal structural reforms: the effect of card payments on vat revenue in the euro area

Author

Listed:
  • George Hondroyiannis

    () (Bank of Greece and Harokopio University)

  • Dimitrios Papaoikonomou

    (Bank of Greece)

Abstract

The use of traceable payment methods presents an additional reform option for improving tax compliance. As regards consumption, card payments are the main alternative to cash in the euro area. Although the use of micro-data has provided clear evidence in favour of increasing information trails, time series evidence on the role of card payments in increasing compliance have been scarce and confined to the recent experience of Greece. The effect of card payments on VAT revenue is investigated using quarterly panel data for the 19 euro area economies covering the period 2003q1-2016q4. Time-varying coefficient methods are employed in order to estimate the country-specific contribution of compliance to revenue growth as a function of card payments. In line with the micro-data literature, the analysis indicates that increasing the share of card payments in private consumption expenditure improves VAT tax compliance. The gains are found to increase: (i) the lower the initial level of card use; (ii) the higher the share of self-employment and (iii) the lower the level of revenue efficiency. The highest benefits are estimated for Greece and Italy.

Suggested Citation

  • George Hondroyiannis & Dimitrios Papaoikonomou, 2018. "Fiscal structural reforms: the effect of card payments on vat revenue in the euro area," Working Papers 249, Bank of Greece.
  • Handle: RePEc:bog:wpaper:249
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    File URL: https://www.bankofgreece.gr/BogEkdoseis/Paper2018249.pdf
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    References listed on IDEAS

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    1. Hall, Stephen G. & Hondroyiannis, George & Kenjegaliev, Amangeldi & Swamy, P.A.V.B. & Tavlas, George S., 2013. "Is the relationship between prices and exchange rates homogeneous?," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 411-438.
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    4. Kenneth Rogoff, 2015. "Costs and Benefits to Phasing out Paper Currency," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 445-456.
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    6. Dina Pomeranz, 2015. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax," American Economic Review, American Economic Association, vol. 105(8), pages 2539-2569, August.
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    10. Hasan, Iftekhar & De Renzis, Tania & Schmiedel, Heiko, 2012. "Retail payments and economic growth," Research Discussion Papers 19/2012, Bank of Finland.
    11. Hondroyiannis, George & Papaoikonomou, Dimitrios, 2017. "The effect of card payments on VAT revenue: New evidence from Greece," Economics Letters, Elsevier, vol. 157(C), pages 17-20.
    12. Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George S., 2009. "The New Keynesian Phillips Curve In A Time-Varying Coefficient Environment: Some European Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 13(2), pages 149-166, April.
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    More about this item

    Keywords

    VAT; card payments; tax compliance; time-varying coefficients; Euro area;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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