The rapid expansion of digital financial services, in particular mobile money, has been a game changer for financial inclusion in developing countries. This paper investigates the impact of mobile money adoption on non-resource tax revenues using a large sample of 97 emerging markets and developing countries (EMDCs) over the period 1990–2021. To address endogeneity concerns, we employ an instrumental variable approach that uses the spatial lag of mobile money adoption in neighbouring countries as an instrument, complemented by the endogenous switching regression model. Our results indicate that mobile money adoption is associated with a significant increase in tax revenues. We also find that bill payments, merchant payments, person-to-person payments, and person-to-government payments have a greater impact on tax revenues than other mobile money services. We identify three potential transmission mechanisms driving this positive effect: (i) enhanced transparency and accountability, which reduces corruption; (ii) formalization of informal firms, which expands the tax base; and (iii) increased tax revenues from international remittances, mainly through higher VAT collection. Moreover, our results suggest that the fiscal benefits associated with mobile money are amplified in environments where public services (such as access to electricity) and digital infrastructure, are more developed. These findings highlight the importance of digital finance as a powerful tool for tax collection in EMDCs.
Journal Article
