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The dual role of money and optimal financial taxes

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Author Info
Huizinga, H. (Tilburg University, Center for Economic Research)

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Abstract

This paper reconsiders the optimal taxation of money and other financial assets. The optimal tax formulae reflect that money provides liquidity services and is a saving vehicle. In fact, it is useful to reformulate the optimal tax problem to allow for separate taxes on the liquidity and saving functions of money. This reformulation allows one to better understand the original optimal tax problem. The possible optimality of a subsidy on borrowing, for instance, can be explained if it is noted that the theoretically correct measure of savings reflects that money as well as nonmonetary assets can serve as saving vehicles.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 99.

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Date of creation: 1996
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Handle: RePEc:dgr:kubcen:199699

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Web page: http://center.uvt.nl

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Find related papers by JEL classification:
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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  1. Adams, Charles & Greenwood, Jeremy, 1985. "Dual exchange rate systems and capital controls: An investigation," Journal of International Economics, Elsevier, vol. 18(1-2), pages 43-63, February. [Downloadable!] (restricted)
  2. Huizinga, H., 1996. "The taxation implicit in two-tiered exchange rate systems," Discussion Paper 100, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Faig, Miquel, 1988. "Characterization of the optimal tax on money when it functions as a medium of exchange," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 137-148, July. [Downloadable!] (restricted)
  4. Harry Huizinga, 1996. "The Taxation Implicit in Two-Tiered Exchange Rate Systems," IMF Working Papers 96/120, International Monetary Fund.
  5. Woodford, Michael, 1990. "The optimum quantity of money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 20, pages 1067-1152 Elsevier. [Downloadable!] (restricted)
  6. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimality of the Friedman Rule in Economies with Distorting Taxes," NBER Working Papers 4443, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Bacchetta, Philippe & Caminal, Ramon, 1992. "Optimal seigniorage and financial liberalization," Journal of International Money and Finance, Elsevier, vol. 11(6), pages 518-538, December. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Brock, Philip L, 1989. "Reserve Requirements and the Inflation Tax," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 106-21, February. [Downloadable!] (restricted)
  10. Fry, Maxwell J., 1981. "Government revenue from monopoly supply of currency and deposits," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 261-270. [Downloadable!] (restricted)
  11. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September. [Downloadable!] (restricted)
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  1. Huizinga, H., 1996. "The taxation implicit in two-tiered exchange rate systems," Discussion Paper 100, Tilburg University, Center for Economic Research. [Downloadable!]
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