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Seigniorage and tax smoothing in the United States 1914-1986

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  • Trehan, Bharat
  • Walsh, Carl E.

Abstract

Models in which fiscal and monetary authorities cooperate to minimize the distortionary costs of raising revenue to finance an exogenous stream of government expenditures are shown to have implications for the long-run relationships between government expenditures, tax revenues and seigniorage. First, tax and seigniorage revenue should be cointegrated. Second, the cointegrating vector linking taxes and seigniorage should be only one of the cointegrating vectors linking expenditures, tax revenues and seigniorage. Third, the deficit net-of-interest should be nonstationary. These implications are tested using annual U.S. data from the period 1914 to 1986. The data reject all three implications of the theory.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 25 (1990)
Issue (Month): 1 (January)
Pages: 97-112

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Handle: RePEc:eee:moneco:v:25:y:1990:i:1:p:97-112

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Web page: http://www.elsevier.com/locate/inca/505566

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Cited by:
  1. Evan Tanner & Issouf Samaké, 2006. "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey," IMF Working Papers 06/295, International Monetary Fund.
  2. Evan Tanner & Yasser Abdih, 2009. "Frugality: Are We Fretting Too Much? Household Saving and Assets in the United States," IMF Working Papers 09/197, International Monetary Fund.
  3. Roberto Ricciuti, 2008. "The quest for a fiscal rule: Italy, 1861–1998," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 2(3), pages 259-274, October.
  4. Amano, Robert A., 1998. "On the Optimal Seigniorage Hypothesis," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 295-308, April.
  5. Roberto Ricciuti, 2004. "Nonlinearity in testing for fiscal sustainability," Money Macro and Finance (MMF) Research Group Conference 2003 80, Money Macro and Finance Research Group.
  6. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI).

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