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Optimal Allocation of Social Cost for Electronic Payment System: A Ramsey Approach

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Authors
Huang, Pidong; Kim, Young Sik; Lee, Manjong
Issue Date
2015-01
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.28 No.1, pp. 31-52
Keywords
CashElectronic payment costRamsey problem
Abstract
Using a standard Ramsey approach, we examine the optimal allocation of social cost for an electronic payment system in the context of a dynamic general equilibrium model. The benevolent government provides electronic payment services and allocates relevant social cost through taxation on the beneficiaries labor and consumption. A higher tax rate on labor yields the following desirable allocations. First, it implies a lower welfare loss because of the distortionary consumption taxation. It also enhances the economy of scale in the use of electronic payment technology, reducing per transaction cost of electronic payment. Finally, it saves the cost of withdrawing and carrying around cash by reducing the frequency of cash trades. All these channels together imply optimality of the unity tax rate on labor.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/93902
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.28 no.1~4 (2015)
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