Taxation in the Digital Age

During the last few decades, we have witnessed the advent of Personal Computers, the Internet, and Social Networks. In turn, these technological innovations have been incorporated into areas of private and public finances. Technological advancements have made the revenue and data collection, auditing, and fraud detection easier, less expensive, and more efficient. But this is only the beginning stage, recent digital innovations will further impact the behavior of the taxpayers as well as the various taxing authorities. The incorporations of these innovations such as the blockchain and the cryptocurrencies technologies will create challenges and opportunities for tax collectors and taxpayers alike. Anticipating what the future holds is a tall order. Our analysis focuses on four distinct aspects of a tax structure that would play an outsized role on the influence of the digital revolution on tax policy: Increased transparency, privacy, an efficient income redistribution and the better incentive structure is the promise of the digital revolution. Transparency and efficiency lead to a broader and flatter tax which combined with an income base transfer program is able to replicate the progressivity of the current tax code while lowering the economy wide marginal tax rate and reducing the size of the government redistribution program. In short, it promises a lower tax rate, a smaller and less expensive social safety net program that meets all of the existing obligations and an increased incentive to work, save, invest and produce.