<p>There are several reasons why state might allow that;</p>
<ol>
<li><p>Administrative cost of enforcement might be too high. Tax evasion is already illegal, so if the stores engage with it, they would likely not have moral qualms about breaking law that requires them to accept cards. They could pretend their card reader is currently out of order, or still ask customers for cash for better prices and so on.</p>
<p>State would likely have to pay large expense for tax enforcers, and collection of what presumably are small claims. If on a margin the cost of collecting 1 euro is larger than 1 euro, it’s irrational even for purely revenue maximizing governments to try to collect on the tax.</p>
</li>
<li><p>Goal of government is not necessarily to maximize government revenue. Government typically does not exist, or at least it is not supposed to exist, just to make itself as large as possible.</p>
<p>Depending on particular welfare criterion that we decide to adopt, it is rational for government to set taxes in such way that its revenue is not maximized.</p>
<p>For example, if we assume that government is run by benevolent Rawlsian social planner, who wants to pursue the Max-Min welfare criterion (i.e. criterion that attempts to maximize welfare/utility of the poorest), and if it’s the case that these Döners primarily serve the poor, it is completely rational to either exempt them from tax (or if the planner cannot change current tax laws to not enforce them). Different welfare criteria lead to different rational optimal policies. To my best knowledge none of the welfare criteria that are commonly proposed by philosophers advocate just for maximizing tax revenue. Hence generally simply crude tax revenue maximization will not be rational for government, and it’s not questionable if government does not do it but rather when it tries to do it (i.e. the question would be what kind of exotic welfare criterion the government has that it only cares about tax revenue).</p>
</li>
<li><p>Governments are not run by benevolent central planner. Democracies to large extents, and even dictatorships to smaller extents (see discussion in Mueller Public Choice III) have to respond to various interest groups.</p>
<p>In German context, anecdotally these Döner restaurants, seem to be primarily Turkish owned. German Turks seem to be sizable political constituency. Even if taxing these Döners would be rational under some welfare criterion, it might not be rational to do for a politicians trying to maximize their voting share.</p>
</li>
</ol>
<p>Hence economically there isn’t anything strange that would need deep explanation going on. This sort of government behavior can be easily explained using basic economic intuition/models, even assuming everyone acts rationally.</p>

CC BY-SA 4.0
2024-06-17T13:16:17.567Z
2024-06-17T13:16:17.567Z
1muflon1
<p>In Germany, many stores don't accept any card (eg: Resutarants). The main reason for this is thought to be to avoid tax. Many of these stores would not be able to actually keep themself running with the tax laws that Germany has.</p>
<p>However, what is keeping the German government to force the buisnesses like the ones I mentioned above to be formalized and be included in the formal sector? By formalization I mean things like making a law, which says that all shops must accept card.</p>
<p>I mean, I have to say that I do enjoy a cheap Döner every once in a while, but it makes no sense for me why it is in the interest of the state to allow cheap döners....</p>

CC BY-SA 4.0
2024-06-16T21:05:25.263Z
Maybe the German government is democratic and knows a lot of Germans like you like cheap döners. There is a consumer surplus to think of. Imposing digital infrastructure costs on the firms shifts the supply curve up decreasing consumer surplus and resulting in some firms closing down. Then the tax is imposed implying a tax wedge with a further decrease in consumer surplus only partly covered by the increase in tax revenue.
Jesper Hybel
CC BY-SA 4.0
2024-06-17T03:36:40.493Z
Why stop at restuarants though, why not include everone, e.g. the painter who comes to your house?
Giskard
<macroeconomics>
What is the point of allowing informal sections of an economy?
Brian
# What is the point of allowing informal sections of an economy?

(Asked by: username_0 on 2024-06-16)

In Germany, many stores don't accept any card (eg: Resutarants). The main reason for this is thought to be to avoid tax. Many of these stores would not be able to actually keep themself running with the tax laws that Germany has.

However, what is keeping the German government to force the buisnesses like the ones I mentioned above to be formalized and be included in the formal sector? By formalization I mean things like making a law, which says that all shops must accept card.

I mean, I have to say that I do enjoy a cheap Döner every once in a while, but it makes no sense for me why it is in the interest of the state to allow cheap döners....

**Tags:** macroeconomics
> **Comments:**
> **username_1**: Maybe the German government is democratic and knows a lot of Germans like you like cheap döners. There is a consumer surplus to think of. Imposing digital infrastructure costs on the firms shifts the supply curve up decreasing consumer surplus and resulting in some firms closing down. Then the tax is imposed implying a tax wedge with a further decrease in consumer surplus only partly covered by the increase in tax revenue.  
> **username_2**: Why stop at restuarants though, why not include everone, e.g. the painter who comes to your house?  

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## 1 answers

### Answer by username_3 on 2024-06-17. Score: 1

There are several reasons why state might allow that;

1. Administrative cost of enforcement might be too high. Tax evasion is already illegal, so if the stores engage with it, they would likely not have moral qualms about breaking law that requires them to accept cards. They could pretend their card reader is currently out of order, or still ask customers for cash for better prices and so on.

   State would likely have to pay large expense for tax enforcers, and collection of what presumably are small claims. If on a margin the cost of collecting 1 euro is larger than 1 euro, it’s irrational even for purely revenue maximizing governments to try to collect on the tax.
2. Goal of government is not necessarily to maximize government revenue. Government typically does not exist, or at least it is not supposed to exist, just to make itself as large as possible.

   Depending on particular welfare criterion that we decide to adopt, it is rational for government to set taxes in such way that its revenue is not maximized.

   For example, if we assume that government is run by benevolent Rawlsian social planner, who wants to pursue the Max-Min welfare criterion (i.e. criterion that attempts to maximize welfare/utility of the poorest), and if it’s the case that these Döners primarily serve the poor, it is completely rational to either exempt them from tax (or if the planner cannot change current tax laws to not enforce them). Different welfare criteria lead to different rational optimal policies. To my best knowledge none of the welfare criteria that are commonly proposed by philosophers advocate just for maximizing tax revenue. Hence generally simply crude tax revenue maximization will not be rational for government, and it’s not questionable if government does not do it but rather when it tries to do it (i.e. the question would be what kind of exotic welfare criterion the government has that it only cares about tax revenue).
3. Governments are not run by benevolent central planner. Democracies to large extents, and even dictatorships to smaller extents (see discussion in Mueller Public Choice III) have to respond to various interest groups.

   In German context, anecdotally these Döner restaurants, seem to be primarily Turkish owned. German Turks seem to be sizable political constituency. Even if taxing these Döners would be rational under some welfare criterion, it might not be rational to do for a politicians trying to maximize their voting share.

Hence economically there isn’t anything strange that would need deep explanation going on. This sort of government behavior can be easily explained using basic economic intuition/models, even assuming everyone acts rationally.


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