Macroeconomic effects of the increase of electronic retail payments – A general equilibrium approach using Hungarian data

Tamás Ilyés and Lóránt Varga

Financial and Economic Review, 2016, vol. 15, issue 2, 129–152

Abstract: In our study, we assess the possible impacts on the performance of the Hungarian economy if various proportions of retail cash payments were substituted with debit card payments. We conducted our analysis in the framework of a general equilibrium model, which also takes into account the costs of payment transactions in a detailed manner. The results indicate that substitution of cash payments with debit card transactions has a favourable impact on the performance and competitiveness of the economy, increases real income, real consumption, the level of GDP and the tax income of the state as well. The favourable effects increase exponentially with the degree of substitution, but are also manifest even in the case of a low level substitution, which is attainable in just a few years. According to our calculations, the favourable macroeconomic impact derives, to a smaller extent, from the transfer of resources released in the field of payment services to other sectors. A more significant impact derives from the fact that, on the one hand, substitution also improves the efficiency of resources already available in the real economy, and, on the other hand, the characteristics of the pricing of debit card services typically causes a smaller deadweight loss than the level we could register concerning the more complex cross-pricing of cash payment services. Based on our findings, on the whole we can formulate the conclusion that by supporting and accelerating the constant efficiency improvement of retail payments, economic policy is able to improve the performance and competitiveness of the entire economy, both directly and indirectly.

Keywords: retail payments; methods of payment; general equilibrium theory; CGE modelling; social costs (search for similar items in EconPapers)
JEL-codes: C68 E27 E42 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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