Advanced Search
MyIDEAS: Login

The optimal mix of taxes on money, consumption and income

Contents:

Author Info

  • Fiorella De Fiore
  • Pedro Teles

Abstract

We determine the optimal combination of taxes on money, consumption and income in transactions technology models where exogenous government expenditures must be financed with distortionary taxes. We show that the optimal policy does not tax money, regardless of whether the government can use as alternative fiscal instruments an income tax, a consumption tax, or the two taxes jointly. These results are at odds with recent literature. We argue that the reason for this divergence is an inappropriate specification of the transactions technology adopted in the literature.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/2002/WP2002-03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-02-03.

as in new window
Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:fip:fedhwp:wp-02-03

Contact details of provider:
Postal: P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834
Phone: 312/322-5111
Fax: 312/322-5515
Email:
Web page: http://www.chicagofed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.chicagofed.org/webpages/publications/print_publication_order_form.cfm

Related research

Keywords: Consumption (Economics) ; Income ; Taxation;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Optimal Fiscal and Monetary Policy Under Sticky Prices," Departmental Working Papers 200105, Rutgers University, Department of Economics.
  2. Vegh, Carlos A., 1989. "The optimal inflation tax in the presence of currency substitution," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 139-146, July.
  3. De Fiore, Fiorella & Teles, Pedro, 2002. "The Optimal Mix of Taxes on Money, Consumption and Income," CEPR Discussion Papers 3437, C.E.P.R. Discussion Papers.
  4. 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.
  5. De Fiore, Fiorella, 2000. "Can indeterminacy explain the short-run non-neutrality of money?," Working Paper Series 0032, European Central Bank.
  6. R. Anton Braun, 1994. "Another attempt to quantify the benefits of reducing inflation," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-25.
  7. Casey B. Mulligan & Xavier Sala-i-Martin, 1997. "The optimum quantity of money: Theory and evidence," Economics Working Papers 229, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  9. 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.
  10. Casey B. Mulligan & Xavier Sala-i-Martin, 1996. "Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy," NBER Working Papers 5504, National Bureau of Economic Research, Inc.
  11. Jovanovic, Boyan, 1982. "Inflation and Welfare in the Steady State," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 561-77, June.
  12. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Guidotti, Pablo E., 1989. "Exchange rate determination, interest rates, and an integrative approach to the demand for money," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 29-45, March.
  14. Avinash Dixit, 1991. "The Optimal Mix of Inflationary Finance and Commodity Taxation with Collection Lags," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 643-654, September.
  15. Marshall, David A, 1992. " Inflation and Asset Returns in a Monetary Economy," Journal of Finance, American Finance Association, vol. 47(4), pages 1315-42, September.
  16. Isabel Horta Correia & Juan Pablo Nicolini & Pedro Teles, 2003. "Optimal Fiscal and Monetary Policy: Equivalence Results," Working Papers w200303, Banco de Portugal, Economics and Research Department.
  17. Barro, Robert J, 1976. "Integral Constraints and Aggregation in an Inventory Model of Money Demand," Journal of Finance, American Finance Association, vol. 31(1), pages 77-88, March.
  18. Isabel Correia & Pedro Teles, 1997. "The optimal inflation tax," Discussion Paper / Institute for Empirical Macroeconomics 123, Federal Reserve Bank of Minneapolis.
  19. Correia, Isabel & Teles, Pedro, 1996. "Is the Friedman rule optimal when money is an intermediate good?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 223-244, October.
  20. Guidotti, Pablo E. & Vegh, Carlos A., 1993. "The optimal inflation tax when money reduces transactions costs : A reconsideration," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 189-205, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Isabel Correia & Juan Pablo Nicolini & Pedro Teles, 2008. "Optimal fiscal and monetary policy: equivalence results," Staff Report 403, Federal Reserve Bank of Minneapolis.
  2. Fiorella De Fiore & Pedro Teles, 2002. "The optimal mix of taxes on money, consumption and income," Working Paper Series WP-02-03, Federal Reserve Bank of Chicago.
  3. Francesco Lippi & Alessandro Secchi, 2008. "Technological change and the demand for currency: An analysis with household data," Temi di discussione (Economic working papers) 697, Bank of Italy, Economic Research and International Relations Area.
  4. Francesco Lippi & Alessandro Secchi, 2008. "Technological change and the households' demand for currency," EIEF Working Papers Series 0801, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
  5. Klaeffling, Matt & López Pérez, Víctor, 2003. "Inflation targets and the liquidity trap," Working Paper Series 0272, European Central Bank.
  6. Alexandre B. Cunha, 2006. "The Optimality Of The Friedman Rule When Some Distorting Taxes Are Exogenous," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 45, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. De Fiore, Fiorella, 2000. "Can indeterminacy explain the short-run non-neutrality of money?," Working Paper Series 0032, European Central Bank.
  8. Miguel Casares, 2007. "The New Keynesian Model and the Euro Area Business Cycle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 209-244, 04.
  9. Alexandre Cunha, 2004. "The Friedman Rule in a Two Sector Small Open Economy," Econometric Society 2004 North American Summer Meetings 530, Econometric Society.
  10. Firouz Gahvari & Luca Micheletto, 2012. "Monetary Policy and Redistribution: What can or cannot be Neutralized with Mirrleesian Taxes," CESifo Working Paper Series 3711, CESifo Group Munich.
  11. De Fiore, Fiorella, 2000. "The optimal inflation tax when taxes are costly to collect," Working Paper Series 0038, European Central Bank.
  12. Arbex, Marcelo & Turdaliev, Nurlan, 2011. "Optimal monetary and audit policy with imperfect taxation," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 327-340, June.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedhwp:wp-02-03. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernie Flores).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.