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Government Finance and the Demand for Money - the Relationship Between Taxation and the Acceptability of Fiat Money

Author

Listed:
  • Ott, Mack

    (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)

  • Tatom, John

    (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)

Abstract

Requiring taxes to be paid in domestic money provides a valuable characteristic for a state’s money. In the case of a state’s fiat money, it is the foundation for money demand and hence to the development of a financial system built around state money. Except for relatively highly taxed countries, where taxes may encourage tax avoidance and holding bank deposits, the level of taxation is a positive factor boosting financial development. Granger causality tests for 65 countries over the past half-century test the relationship between money and government finance. Except for the low-income countries, where there are only five with adequate data, the causal relationship between taxation and money demand is generally supported in the 60 countries making up the three higher income groups.

Suggested Citation

  • Ott, Mack & Tatom, John, 2015. "Government Finance and the Demand for Money - the Relationship Between Taxation and the Acceptability of Fiat Money," Studies in Applied Economics 37, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    • Handle: RePEc:ris:jhisae:0037
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Taxation; financial development; money demand; emerging markets;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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