Seigniorage and the Proposed East Africa Community (EAC) Monetary Union
A long-term objective of the East Africa Community treaty is to form a monetary union. This paper tests the viability of this proposal using a model of government finance that minimizes the social cost of financing government expenditure. The results indicate that the policies of these countries are consistent with inter-temporal tax smoothing, but the marginal social cost equalization hypothesis is rejected. Thus inflation tax does not have to differ across the countries for government financing reasons. This is therefore one less obstacle to monetary union.
Volume (Year): 6 (2004)
Issue (Month): 2 ()
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