Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system
AbstractWe extend the [Barro, R., 1990. Government spending in a simple model of economic growth. Journal of Political Economy 98, 103-125] model to money financing of public expenditures, in a setup where money demand is motivated by a "transaction cost" technology, exhibiting the "cash-in-advance" specification as a special case, in the spirit of [Palivos, T., Yip, C., 1995. Government expenditure financing in an endogenous growth model: a comparison. Journal of Money, Credit and Banking 27, 1159-1178]. Allowing for productive public spending yields threshold effects between long-run growth and both income taxation and seigniorage, thus reproducing recent stylized facts. Moreover, in the cash-in-advance special case, we show that, to maximize long-run growth and/or welfare, government must use seigniorage-only or taxes only, depending on parameters, and in particular on the degree of financial development. In contrast, the general form of money demand motivated by a "transaction cost" technology produces interior solutions in which both seigniorage and taxes are used. An empirical section confirms our theoretical results.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 31 (2009)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622617
Endogenous growth Threshold effects Monetary policy Fiscal policy Financial repression Financial development;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
- Wang, Ping & Yip, Chong K, 1992.
"Alternative Approaches to Money and Growth,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 24(4), pages 553-62, November.
- 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.
- Nouriel Roubini & Xavier Sala-i-Martin, 1992.
"A Growth Model of Inflation, Tax Evasion, and Financial Repression,"
NBER Working Papers
4062, National Bureau of Economic Research, Inc.
- Roubini, Nouriel & Sala-i-Martin, Xavier, 1995. "A growth model of inflation, tax evasion, and financial repression," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 275-301, April.
- Roubini, N. & Sala-i-Martin, X., 1992. "A Growth Model of Inflation, Tax Evasion and Financial Repression," Papers 658, Yale - Economic Growth Center.
- Jones, Larry E. & Manuelli, Rodolfo E., 1995.
"Growth and the effects of inflation,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 19(8), pages 1405-1428, November.
- Englund, Peter & Svensson, Lars E O, 1988. "Money and Banking in a Cash-in-Advance Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 681-705, November.
- Bruno, Michael & Easterly, William, 1995.
"Inflation crises and long-run growth,"
Policy Research Working Paper Series
1517, The World Bank.
- Anthony Philip Thirlwall & A.C. Barton, 1971.
"Inflation and growth: the international evidence,"
Banca Nazionale del Lavoro Quarterly Review,
Banca Nazionale del Lavoro, vol. 24(98), pages 263-275.
- Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
- Gylfason, Thorvaldur, 1990.
"Inflation, Growth and External Debt: A View of the Landscape,"
CEPR Discussion Papers
375, C.E.P.R. Discussion Papers.
- Thorvaldur Gylfason, 1991. "Inflation, Growth, and External Debt: A View of the Landscape," The World Economy, Wiley Blackwell, vol. 14(3), pages 279-297, 09.
- Theodore Palivos & Chong K. Yip, 1995.
"Government Expenditure Financing in an Endogenous Growth Model: A Comparison,"
Departmental Working Papers
_057, Chinese University of Hong Kong, Department of Economics.
- Palivos, Theodore & Yip, Chong K, 1995. "Government Expenditure Financing in an Endogenous Growth Model: A Comparison," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1159-78, November.
- Theodore Palivos & Chong K. Yip, 1994. "Government expenditure financing in an endogenous growth model: a comparison," Working Paper 94-1, Federal Reserve Bank of Atlanta.
- Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
- Alogoskoufis, George S. & van der Ploeg, Frederick, 1991. "On budgetary policies, growth, and external deficits in an interdependent world," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 305-324, December.
- Joseph H. Haslag & Jahyeong Koo, 1999. "Financial repression, financial development and economic growth," Working Papers 9902, Federal Reserve Bank of Dallas.
- Robert J. Barro, 2012.
"Inflation and Economic Growth,"
CEMA Working Papers
568, China Economics and Management Academy, Central University of Finance and Economics.
- John H. Boyd & Ross Levine & Bruce D. Smith, 1997.
"Inflation and financial market performance,"
573, Federal Reserve Bank of Minneapolis.
- Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
- Adam, Christopher S. & Bevan, David L., 2005. "Fiscal deficits and growth in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 571-597, April.
- Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992.
"Seigniorage and Political Instability,"
American Economic Review,
American Economic Association, vol. 82(3), pages 537-55, June.
- Sung Kim & Thomas Willett, 2000. "Is the negative correlation between inflation and growth real? An analysis of the effects of the oil supply shocks," Applied Economics Letters, Taylor & Francis Journals, vol. 7(3), pages 141-147.
- Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
- Hartley, Peter R, 1988. "The Liquidity Services of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 1-24, February.
- Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
- Eleftherios Goulas & Athina Zervoyianni, 2012. "Growth, Deficits and Uncertainty in a Panel of 28 Countries," Working Paper Series 52_12, The Rimini Centre for Economic Analysis.
- Goulas, Eleftherios & Zervoyianni, Athina, 2013. "Growth, deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 380-392.
- Minea, Alexandru & Villieu, Patrick, 2010. "Financial development, institutional quality and maximizing-growth trade-off in government finance," Economic Modelling, Elsevier, vol. 27(1), pages 324-335, January.
- Yannick Lucotte, 2010.
"Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation,"
- Lucotte, Yannick, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," MPRA Paper 23871, University Library of Munich, Germany.
- Eleftherios Goulas & Athina Zervoyianni, 2013. "Growth, Deficits and Uncertainty: Theoretical Aspects and Empirical Evidence," Working Paper Series 53_13, The Rimini Centre for Economic Analysis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.