Financial Inclusion, Digital Payments and Their Impact on Income and Tax Revenue Around the World

Abstract

This study investigates and quantifies the impact of financial inclusion and digital payments on income and individual government tax revenues for countries around the world. Of the almost two billion people in the world that are financially excluded, the World Bank and other stakeholders have committed to helping one billion people gain access to financial services and become involved in the formal economy by 2020. This rapid pace of financial inclusion will bring vast amounts of income and tax revenues into the global economy that is important to understand as it creates different opportunities and challenges for developing and advanced countries that they will need to prepare for.

Using various global datasets, a methodology was developed to forecast financial inclusion rates, digital payments rates, average income, and other factors up to the year 2020. The results suggest a sharp increase in financial inclusion rates and digital payment rates which translate to hundreds of millions of people entering the formal economy. Details of the most affected countries by dollar value, percent change, and the regional affects are provided for various indicators throughout the study. With regards to capturing the most tax revenue, China and the United States gain the most in dollar terms while Turkmenistan gains the most in percentage terms. Between 2014 and 2020, a cumulative $12 trillion of income is projected to enter the formal economy worldwide resulting in $4.1 trillion in tax revenue. Governments around the globe could take advantage of this significant opportunity.