 How should payment services be taxed?Ben Lockwood and Erez Yerushalmi Social Choice and Welfare, 2019, vol. 53, issue 1, No 2, 47 pages Abstract: 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, fees should be taxed at a lower rate than real money balances, and 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. JEL-codes: G21 H21 H25 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:sochwe:v:53:y:2019:i:1:d:10.1007_s00355-019-01178-6 Ordering information: This journal article can be ordered from DOI: 10.1007/s00355-019-01178-6 Access Statistics for this article Social Choice and Welfare is currently edited by Bhaskar Dutta, Marc Fleurbaey, Elizabeth Maggie Penn and Clemens Puppe More articles in Social Choice and Welfare from Springer, The Society for Social Choice and Welfare Contact information at EDIRC. |
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