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Consumption tax, seigniorage tax and tax switch in a cash-in-advance economy of endogenous growth

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  • Wen-ya Chang
  • Hsueh-fang Tsai
  • Juin-jen Chang
  • Kuo-Hao Lee

    ()

Abstract

This paper studies the effects of alternative tax policies (a consumption tax, seigniorage tax, and tax switch) on economic growth under different methods of government budget adjustment in a monetary endogenous growth model with a labor–leisure choice and a cash-in-advance constraint which is only imposed on consumption. It is found that the validity of both the Mundell–Tobin effect and the consumption tax neutrality crucially depends on the adjustment methods used to maintain the balanced government budget. In addition, we find that a switch from a consumption tax to a seigniorage tax unambiguously enhances economic growth. This result stands in sharp contrast to that of Ho et al. (J Money Credit Bank 39:105–131, 2007 ), in that it does confirm the validity of the qualitative equivalence between the money-in-the-utility-function and cash-in-advance approaches in terms of the effect of tax shifting away from a consumption tax towards a seigniorage tax. Copyright Springer-Verlag Wien 2015

Suggested Citation

  • Wen-ya Chang & Hsueh-fang Tsai & Juin-jen Chang & Kuo-Hao Lee, 2015. "Consumption tax, seigniorage tax and tax switch in a cash-in-advance economy of endogenous growth," Journal of Economics, Springer, vol. 114(1), pages 23-42, January.
  • Handle: RePEc:kap:jeczfn:v:114:y:2015:i:1:p:23-42
    DOI: 10.1007/s00712-013-0382-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Mundell–Tobin effect; Consumption tax; Seigniorage tax; Tax switch; E52; H21; O42; J22;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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