TAX EVASION AND CASH PAYMENT CAP. DOES REALLY EXIST A RELATIONSHIP?

Abstract

The shadow economy, which falls under the broader definition of the unobserved economy, has not found a univocal interpretation of the causes of its origin and evolution over time. The analysis becomes more difficult when extended to European countries, which differ in terms of the culture and structure of their tax systems. Despite this, to squelch a phenomenon related to the shadow economy, such as tax evasion, the European Commission has repeatedly stressed that the introduction of a cap on cash payments could be a possible tool for reducing tax evasion. Over time, different methodologies have been used to estimate both the unobserved economy and tax evasion, although the results have nonetheless converged. This does not happen in the formulation of country tax gap rankings, which change depending on whether tax evasion is used in relation to Gross Domestic Product or population. The purpose of this paper is to investigate the relationship between the levels of tax evasion and the introduction of the cash cap limits in the European countries. The existing tax regulations are different across the countries and not all have placed limits on cash payments. From the econometric estimation, the relationship between the existence of cash payment limits and the reduction in evasion was confirmed only for a threshold exceeding five thousand euros. The other variables considered – such as the tax burden on enterprises and families and the efficiency of the tax system – produce, instead, effects of a very different magnitude.