Digital Payments, Multidimensional Taxes

Introduction

Digitalization is revolutionizing our economies. The volume of digital payments has increased exponentially, fueled by electronic commerce and financial transactions. Giant internet platforms are now dominant players at the global level and manage to avoid most taxes. New payment service providers are undermining the traditional business model of banks.

We lack a conceptual framework for guiding the regulatory and taxation reforms that are needed to adapt to this digital revolution. I will contribute to provide such a framework by examining three questions:

1. Digital payments: regulation and/or public provision?

I will study how the banking regulatory model, focused essentially on prudential and monetary issues, needs to be adapted to take care of antitrust and privacy issues.

I will also examine if the public provision of digital payments can eliminate the risk of domination of the payments industry by a few private platforms.

2. Should we tax digital payments?

Current taxes on digital services and financial transactions are, by and large, evaded by businesses. An alternative is to introduce a (small) tax on all digital payments.

This could generate a sizable revenue, would be easy to implement, difficult to avoid, but would also generate distortions. I will incorporate payments into a general equilibrium model and carry out a cost-benefit analysis of this “tax for the 21st century”.

3. Multidimensional taxation in a digitalized economy

Traditional sectors are deeply impacted by the digitalization of the economy. Thus, it would be appropriate to consider a global reform of the tax system.

However, an important theoretical hurdle is to find a way to solve general screening problems with multiple instruments and multiple dimensions of heterogeneity, which nobody has done so far. Based on a recent breakthrough in numerical methods, I will provide such a general solution and apply it to multidimensional taxation in a digitalized economy.