American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Electronic Payment Technology and Tax Compliance: Evidence from Uruguay's Financial Inclusion Reform
American Economic Journal: Economic Policy
vol. 17,
no. 1, February 2025
(pp. 242–72)
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 transactions trigger an immediate 50 percent 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.Citation
Brockmeyer, Anne, and Magaly Sáenz Somarriba. 2025. "Electronic Payment Technology and Tax Compliance: Evidence from Uruguay's Financial Inclusion Reform." American Economic Journal: Economic Policy 17 (1): 242–72. DOI: 10.1257/pol.20220434Additional Materials
JEL Classification
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H26 Tax Evasion and Avoidance
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance