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Seigniorage Revenue and Inflation Tax: Testing Optimal Seigniorage Theory for Turkish Economy

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  • dogru, bulent

Abstract

The goal of this study is to test the implication of Mankiv’s (1987) optimal seigniorage theory suggesting that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates for Turkish Economy using time series dataset for the time period 1980-2011.We examine the long run relationship between nominal interest rates, inflation and tax revenue. For this purpose, we estimate the Mankiw’soptimal seigniorage model for Turkish Economy with the cointegration and vector error correction methods (VECM) techniques. 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 the 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 47885.

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Date of creation: Jun 2013
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Publication status: Published in International Journal of Economics and Finance 5.6(2013): pp. 122-133
Handle: RePEc:pra:mprapa:47885

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Keywords: seigniorage and inflation tax; optimal seigniorage theory; Turkish economy; error correction model; cointegration analysis;

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  1. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  2. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers 88-05, Rochester, Business - General.
  3. 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.
  4. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  5. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  6. Dani Rodrik, 1990. "Premature Liberalization, Incomplete Stabilization: the Ozal Decade in Turkey," NBER Working Papers 3300, National Bureau of Economic Research, Inc.
  7. 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.
  8. Levent, Korap, 2006. "Seigniorage revenue and Turkish economy," MPRA Paper 20106, University Library of Munich, Germany.
  9. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-56, July-Aug..
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