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The effect of card payments on vat revenue in Greece

Hondroyiannis, George, Papaoikonomou, Dimitrios, (2017), “The effect of card payments on vat revenue in Greece”, Bank of Greece Working Paper 225, May

The effect of card payments on VAT revenue performance in Greece is investigated using quarterly observations on card transactions during 2002q1-2016q2. Timevarying-coefficient methods are employed, in order to study the role of increasing card payments after the imposition of cash restrictions in July 2015. 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. It is argued that stronger incentives for using card payments in tax evading industries can help lock-in the recent strong revenue performance whenvcash restrictions are lifted.

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