Cryptocurrency-Tax Evasion Nexus: Do Institutions Matter? The Case of G7 Countries
DOI:
https://doi.org/10.22452/IJIE.vol18no2.7Keywords:
Tax evasion, Cryptocurrencies, Bitcoin, G7, Panel model, InstitutionsAbstract
Cryptocurrencies have faced significant criticism due to their association with
tax evasion, money laundering, and criminal activities, such as fraudulent investments,
drug trafficking, and terrorism financing. Cryptocurrencies‘ decentralised and regulatory
bypassing nature raises concerns among regulators, who aim to ensure the integrity of
centralised financial systems and institutions. Despite these concerns, cryptocurrencies
offer secure, efficient, and low-cost payment methods on a global scale. In light of these
contrasting dynamics, this study investigates the role of cryptocurrencies in tax evasion
within the Group of Seven (G7) countries. The study provides the latest assessment of
tax evasion levels by constructing a novel tax evasion index using the currency demand
approach (CDA). Employing panel techniques and utilising data from 2013 to 2020,
the research reveals a negative relationship between cryptocurrencies and tax evasion.
Additionally, the study highlights the significance of institutional quality in shaping the
association between cryptocurrencies and tax evasion. The findings of this study offer
valuable insights to policymakers, informing them of the relationship between Bitcoin,
governance, and tax evasion. By comprehending the dynamics at play, policymakers can
make informed decisions regarding the regulation and oversight of cryptocurrencies,
ensuring a balanced approach that addresses concerns while leveraging the benefits offered
by these digital assets.
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