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Can Taxes and Bonds Finance Government Spending?

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  • Stephanie Bell

    (The Jerome Levy Economics Institute)

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    Abstract

    This 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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    File URL: http://128.118.178.162/eps/mac/papers/9808/9808008.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 9808008.

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    Length: 27 pages
    Date of creation: 18 Aug 1998
    Date of revision:
    Handle: RePEc:wpa:wuwpma:9808008

    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 27; figures: included
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    Web page: http://128.118.178.162

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    Cited by:
    1. L. Randall Wray, 1999. "The 1966 Financial Crisis: a Case of Minskian Instability?," Macroeconomics 9902009, EconWPA.
    2. 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.
    3. Tony Aspromourgos, 2000. "Is an Employer-of-Last-Resort Policy Sustainable? A review article," Review of Political Economy, Taylor & Francis Journals, vol. 12(2), pages 141-155.

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