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

•A 1pp increase in the share of card payments in private consumption results in approximately 1% higher VAT revenue through increased compliance.•Lowering the VAT rate can generate revenue gains.•Card transactions may facilitate tax buoyancy.

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.