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Inflationary Financing of Government Expenditure in an Endogenous Growth Model

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  • Tapio Palokangas

    ()
    (University of Helsinki, Finland)

Abstract

This paper analyses the role of inflation in economies with endogenous growth and congestion in public services. Optimal policy rules are derived for public services and investment. The other findings are as follows. Monetary policy should maximize economic growth. The more inefficient the public sector is, the higher the growth--maximizing inflation rate is. If a currency union accepts a new member with an inefficient public sector, this will boost inflation in the union and decrease growth and welfare in all member economies of the union. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd 2003

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 4 (2003)
Issue (Month): 1 (February)
Pages: 121-137

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Handle: RePEc:bla:germec:v:4:y:2003:i:1:p:121-137

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  1. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  2. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  3. Alfred Greiner & Horst Hanusch, 1998. "Growth and Welfare Effects of Fiscal Policy in an Endogenous Growth Model with Public Investment," International Tax and Public Finance, Springer, vol. 5(3), pages 249-261, July.
  4. Cavalcanti Ferreira, Pedro, 1999. "Inflationary financing of public investment and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 539-563, February.
  5. Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
  6. Huo, Teh-Ming, 1997. "Inflation and Capital Accumulation in a Two-Sector Cash-in-Advance Economy," Journal of Macroeconomics, Elsevier, vol. 19(1), pages 103-115, January.
  7. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  8. Canzoneri, Matthew B & Rogers, Carol Ann, 1990. "Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies," American Economic Review, American Economic Association, vol. 80(3), pages 419-33, June.
  9. Palokangas, Tapio, 1997. "Inflation and Growth in an Open Economy," Economica, London School of Economics and Political Science, vol. 64(255), pages 509-18, August.
  10. Pecorino, Paul, 1997. "The Optimal Rate of Inflation When Capital is Taxed," Journal of Macroeconomics, Elsevier, vol. 19(4), pages 657-673, October.
  11. Zhang, Junxi, 1996. "A simple pecuniary model of money and growth with transactions cost," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 127-137.
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