Cash and the Hidden Economy: Experimental Evidence on Fighting Tax Evasion in Small Business Transactions

• DOI: 10.1007/s10551-022-05186-y
• Publication Date: 2022-07-18T14:02:50Z
• Authors: Ho Fai Chan; Uwe Dulleck; Jonas Fooken; Naomi Moy; Benno Torgler
• Keywords: Cash transaction; 330; Service industry; 8. Economic growth; 0502 economics and business; 05 social sciences; Hidden economy; Laboratory experiment; Tax compliance

Abstract Increasing the tax compliance of self-employed business owners—particularly trade-specific service providers such as those involved in construction and repair work—remains an ongoing challenge for authorities. From a point view, cash transactions are particularly problematic when services paid on spot, these exchanges difficult to audit. We present experimental evidence testing ten different policy strategies rooted enforcement, service, trust/social paradigms, setting that allows payment either via transaction directly reports income collection purposes or cash, where taxes only collected reported income. Our sample includes both typical subject pool students, used most previous studies, non-students who active within industries characterised by opportunity engage transactions. While our comparative results show that, student non-student participants, interventions rely greater enforcement authority have greatest effect economy setting, treatments involving cooperative elements may be similarly effective enhancing compliance. Given their effectiveness, approaches should therefore considered addition mix if implemented at relatively low costs, making carrot stick promising increase environment cash-for-service payments offer common benefit small businesses customers from implicit collusion enables evasion.