Long-Run Monetary and Fiscal Policy Trade-Off in an Endogenous Growth Model with Transaction Costs
AbstractIn this paper, we study maximizing long-run economic growth trade-off in monetary and fiscal policies in an endogenous growth model with transaction costs. We show that both monetary and fiscal policies are subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, maximizing-growth government must choose relatively high seigniorage (respectively income taxation), if ?tax evasion? and ?financial repression? coefficients are high (respectively low). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax-rate, as result of maximizing-growth strategies in different structural environments (notably concerning tax evasion and financial repression). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Göttingen 2007 with number 23.
Date of creation: 2007
Date of revision:
endogenous growth; threshold effects; monetary policy; fiscal policy; public deficit; policy mix; tax evasion; financial repression;
Find related papers by JEL classification:
- H6 - Public Economics - - National Budget, Deficit, and Debt
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-CBA-2007-12-01 (Central Banking)
- NEP-FDG-2007-12-01 (Financial Development & Growth)
- NEP-MAC-2007-12-01 (Macroeconomics)
- NEP-PBE-2007-12-01 (Public Economics)
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