Can Taxes and Bonds Finance Government Spending?
AbstractThis paper investigates the commonly held belief that government spending is normally financed through a combination of taxes and bond sales. The argument is a technical one and requires a detailed analysis of reserve accounting at the central bank. After carefully considering the complexities of reserve accounting, it is argued that the proceeds from taxation and bond sales are technically incapable of financing government spending and that modern governments actually finance all of their spending through the direct creation of high-powered money. The analysis carries significant implications for fiscal as well as monetary policy.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 9808008.
Length: 27 pages
Date of creation: 18 Aug 1998
Date of revision:
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 27; figures: included
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Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-10-02 (All new papers)
- NEP-PBE-1998-10-02 (Public Economics)
- NEP-PKE-1998-10-05 (Post Keynesian Economics)
- NEP-PUB-1998-10-02 (Public Finance)
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- L. Randall Wray, 1999. "The 1966 Financial Crisis: Financial instability or political economy?," Review of Political Economy, Taylor & Francis Journals, vol. 11(4), pages 415-425.
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