Tax credits for consumer services reduce VAT evasion and boost compliance.
The study looked at how giving tax credits to consumers for certain services can help reduce tax evasion. By analyzing tax data from Germany, the researchers found that these tax credits encouraged businesses to report their sales accurately for VAT. This led to an increase in VAT revenues and helped formalize the economy. The tax credit had a strong impact on reported sales and limited effect on prices, showing that it can be an effective tool in tackling tax evasion.