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Taxation and Monetary Aggregation

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  • Dutkowsky, Donald H

Abstract

This study examines the correspondence of the Divisia and Currency Equivalent (CE) measures of money to the optimal aggregate under contemporaneous taxation of interest income. We show that although this behavior can violate a condition regarding monetary aggregation under uncertainty and risk aversion, several important results continue to hold. The conventional Divisia index exactly tracks the theoretically determined aggregate. With strong separability of currency in the aggregator function, the Currency Equivalent measure emerges from this framework. Even under contemporaneous taxation of interest income, the theoretically correct Divisia and CE measures are based upon pre-tax interest rates.

Suggested Citation

  • Dutkowsky, Donald H, 1999. "Taxation and Monetary Aggregation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 811-817, November.
    • Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:4:p:811-17
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    Cited by:

    1. Donald H. Dutkowsky & H. Sonmez Atesoglu, 2001. "The Demand For Money: A Structural Econometric Investigation," Southern Economic Journal, John Wiley & Sons, vol. 68(1), pages 92-106, July.
    2. Sunil Paul & M. Ramachandran, 2013. "Do Currency Equivalent Monetary Aggregates Have an Edge over Their Simple Sum Counterparts?," South Asian Journal of Macroeconomics and Public Finance, , vol. 2(2), pages 107-143, December.

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