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Seigniorage and tax smoothing in the United States: 1914-1986

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  • Carl E. Walsh
  • Bharat Trehan

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

Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 88-05.

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Date of creation: 1988
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Handle: RePEc:fip:fedfap:88-05

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Keywords: Taxation ; Econometric models;

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Cited by:
  1. Yulei Luo & Jun Nie & Eric R. Young, 2012. "Model uncertainty and intertemporal tax smoothing," Research Working Paper RWP 12-01, Federal Reserve Bank of Kansas City.
  2. Evan Tanner & Yasser Abdih, 2009. "Frugality," IMF Working Papers 09/197, International Monetary Fund.
  3. Antonio E. Noriega & Manuel Ramos Francia, 2009. "On the dynamics of inflation persistence around the world," Working Papers 2009-02, Banco de México.
  4. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI).
  5. David R. Stockman, 2001. "Balanced-Budget Rules: Welfare Loss and Optimal Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 438-459, July.
  6. Gogas, Periklis & Serletis, Apostolos, 2005. "The revenue smoothing hypothesis in an ARIMA Framework: Evidence from the United States, in Claude Diebolt, Catherine Kyrtsou et al. (eds.), New Trends in Macroeconomics," MPRA Paper 1464, University Library of Munich, Germany.
  7. Evan Tanner & Issouf Samaké, 2006. "Probabilistic Sustainability of Public Debt," IMF Working Papers 06/295, International Monetary Fund.
  8. Hirte, Georg, 2001. "Pension Policies for an Aging Society," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 14, number urn:isbn:9783161475399, July.
  9. 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.
  10. 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.
  11. Amano, Robert A., 1998. "On the Optimal Seigniorage Hypothesis," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 295-308, April.
  12. Hakan Berument, 1997. "Financing divided governments," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 369-372.

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