Card or cash? Evidence regarding consumers' cooperative value-added tax compliance

Cashless payments discourage value-added tax (VAT) evasion through transaction records; and they essentially require cooperation from consumers and small business owners. As indirect VAT payers, consumers' payment methods decisively influence the final VAT declaration. However, the literature has yet to investigate consumers' collusive VAT evasion. This study uses data from approximately 7300 taxpayers as collected by the National Survey of Tax and Benefit of South Korea to examine the impacts of perceived trust paradigms on consumers' responses to payment methods when small business owners offer discount benefits. The results reveal that perceived trust in government significantly strengthens consumers' cooperative VAT compliance. We also discover that when the discount amounts are higher, trust has a greater impact on cooperative VAT compliance. The study contributes to the tax literature by demonstrating that trust can improve consumers' cooperative VAT compliance.