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Seigniorage Revenue and Inflation Tax in Turkish economy

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  • doğru, bülent

Abstract

The goal of this study is to test the implication of optimal seigniorage theory that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates. For this purpose, we examine the long run relationship between nominal interest rates, inflation and tax revenue using time series dataset for Turkish Economy for the period 1980-2011. We estimate the Mankiw’s (1987) optimal seigniorage model for Turkish Economy with the cointegration and vector error correction methods (VECM). According to econometric result, in long run there is a causality relationship from inflation and tax revenue to nominal interest rates. However, in short run we could not find any evidence that support a causality from inflation and tax revenue to nominal interest rates.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45538.

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Date of creation: 03 Mar 2013
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Handle: RePEc:pra:mprapa:45538

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Keywords: Seigniorage; Inflation Tax; Turkish Economy; Error Correction Model; Cointegration Analysis.;

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  1. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-56, July-Aug..
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  3. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-48, September.
  4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  5. Levent, Korap, 2006. "Seigniorage revenue and Turkish economy," MPRA Paper 20106, University Library of Munich, Germany.
  6. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  7. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  8. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  9. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
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