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Electronic Payment Technology and Tax Compliance: Evidence from Uruguay's Financial Inclusion Reform

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  • Brockmeyer, Anne
  • Sáenz Somarriba, Magaly

Abstract

Does the digitization of transactions in an economy increase tax compliance? We study the effect of financial incentives on the adoption of electronic payment technology and on tax compliance by firms. Exploiting administrative data and policy variation from Uruguay, we show that i) consumer VAT rebates for credit and debit card transactions trigger an immediate 50% increase in the number of card transactions, ii) firms' use of card machines increases only on the intensive margin, and iii) tax compliance is unaffected. Endogenous card machine adoption and a low share of card sales in total reported sales can rationalize the findings.

Suggested Citation

  • Brockmeyer, Anne & Sáenz Somarriba, Magaly, 2022. "Electronic Payment Technology and Tax Compliance: Evidence from Uruguay's Financial Inclusion Reform," CEPR Discussion Papers 17097, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17097
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    More about this item

    Keywords

    Credit/debit card payment; Tax compliance; Third-party reporting; Vat;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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