The effect of card payments on VAT revenue: New evidence from Greece

Abstract

The anticipated positive effect of card payments on VAT revenue performance has eluded empirical confirmation. The case of Greece provides a unique study ground, as the imposition of restrictions on cash withdrawals in July 2015 triggered a surge in card payments and in VAT revenue. Applying time-varying coefficient methods to Greek data during 2003q4–2016q2 we find that (i) a 1pp increase in the share of card payments in private consumption results in approximately 1% higher revenue through increased compliance; (ii) lowering the VAT rate can generate revenue gains; (iii) card transactions may facilitate tax buoyancy.