Financial Inclusion and Tax Revenue: Evidence From Europe

Abstract

This paper aimed to investigate the relationship between financial inclusion and tax revenue using measures from the Global Findex database for a sample of 28 European countries between 2011- 2017. The data were analysed using panel data methodology. The number of people who are financially included in this observed period might increase over time, which would create more income and in turn lead to higher tax contributions to the government. We found strong evidence to suggest that financial inclusion represents one of the determinants of tax revenue in European countries. Results of the analysis show positive and significant impact of financial inclusion as measured by Bank account (% of age +15) and credit card ownership (% age 15+) on tax revenues measures. The results are robust using several sources of taxation. The findings suggest that higher financial inclusion is associated with more tax revenue. These results should be of great interest to regulators and policymakers to take advantage of the developments on financial inclusion.