Abstract
This paper is one of the first to quantify the welfare effects of proposed cash suppression policies. We work within the context of a general equilibrium framework in which households face an endogenous cash-in-advance constraint and firms use cash transactions to evade taxes. Eliminating currency increases transactions costs and raises effective tax rates by curbing tax evasion. Our quantitative experiments imply that a total cash ban improves steady-state welfare, but only if paired with a revenue-neutral decrease in the tax rate on capital. We show in an extension with heterogeneous agents that curtailing cash harms frequent-cash users more than others. Such distributional effects of cash suppression may be a concern for policymakers.
Published Version
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