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The dynamic welfare cost of seignorage tax and consumption tax in a neoclassical growth model with a cash-in-advance constraint

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  • Lu, Chia-Hui
  • Chen, Been-Lon
  • Hsu, Mei

Abstract

Using a public finance approach, this study investigates welfare costs between seignorage and consumption taxes in a standard growth model. One of these two taxes is used to finance exogenous public spending to balance the government budget. The steady-state welfare cost of consumption taxes is lower if the consumption effect dominates the leisure effect. This paper compares equilibrium along transitional dynamic and steady-state paths and finds that because of lower consumption and leisure and thus higher welfare costs of consumption taxes during early periods, the welfare cost of consumption taxes is larger than the welfare cost of seignorage taxes.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 2 (June)
Pages: 247-258

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:2:p:247-258

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Growth model Cash-in-advance Seignorage tax Consumption tax Welfare cost;

References

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Cited by:
  1. Jianpo Xue & Chong K. Yip, 2013. "Balanced-Budget Rules and Aggregate Instability: The Role of Consumption Taxes in a Monetary Economy," Working Papers 112013, Hong Kong Institute for Monetary Research.

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