How Should Payment Services be Taxed?
Lockwood, Ben and Yerushalmi, Erez (2019) How Should Payment Services be Taxed? Social Choice and Welfare. pp. 1-27. ISSN 0176-1714
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Abstract
This paper considers the design of taxes on real money balances and bank payment services, when realistically, the household can use either cash or a bank payment account for the purchase of different varieties of goods. These taxes, plus a consumption tax, fund a government revenue requirement. We find that generally, real money balances and bank transaction fees should be taxed, and at different rates, i.e. the tax system should not leave the choice of payment services undistorted. For a wide class of time transactions cost technologies, including the Baumol-Tobin case, (i) fees should be taxed at a lower rate than real money balances, and (ii) the tax on real money balances should be positive. However, it is possible that fees should be subsidized. The rate of tax on fees has no simple relationship to the optimal consumption tax, and can be higher or lower. A Corlett-Hague type intuition for these results is also developed, which relies on the concept of a virtual time endowment.
| Item Type: | Article | ||||||
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| Identification Number: | doi.org/10.1007/s00355-019-01178-6 | ||||||
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| Subjects: | CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics | ||||||
| Divisions: | Faculty of Business, Law and Social Sciences > Birmingham City Business School > Centre for Applied Finance and Economics Faculty of Business, Law and Social Sciences > Birmingham City Business School |
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| Depositing User: | Erez Yerushalmi | ||||||
| Date Deposited: | 08 Mar 2019 15:36 | ||||||
| Last Modified: | 22 Mar 2023 11:49 | ||||||
| URI: | https://www.open-access.bcu.ac.uk/id/eprint/7018 |
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