Brockmeyer (Institute for Fiscal Studies, University College London, and the World Bank) will present “Electronic Payment Technology and Tax Capacity: Evidence from Uruguay’s Financial Inclusion Reform”.

The idea that the digitization of transactions in an economy might increase government tax capacity has been prominent in the economic literature and in policy debates. This paper studies the effect of financial incentives on the adoption of electronic payment technology by firms and consumers, and on tax compliance by firms. Exploiting administrative tax and transaction records and quasi-experimental variation generated by Uruguay’s Financial Inclusion Reform, we present three main findings. 

Consumer VAT rebates for credit/debit card transactions trigger an immediate 50% increase in the number of card transactions and a 20-30% increase in the volume of card transactions. Firms are much less responsive, however, with adoption of point-of-sale terminals (POS) increasing only marginally and only on the intensive margin. Comparing retail firms to wholesale firms in a difference-in-difference design, we find no increase in tax compliance. Endogenous POS adoption and the fact that electronic sales constitute less than 30% of total reported sales among firms with a POS can rationalize this finding.

Register in advance for the webinarHERE.

The Tax for Development Webinar Series is jointly organized by CMI and the TaxCapDev-network and features ongoing research and initiatives to strengthen domestic revenue mobilization in developing countries, with a focus on sub-Saharan Africa. You can read more about the webinar series and sign up for the individual webinars HERE.