Government Spending and Inflationary Finance: A Public Finance Approach
The dependence of the inflation tax on the level of government spending is analyzed in a public finance context. The key feature of the model is that it recognizes the possibility that conventional taxes, such as the consumption tax, carry increasing marginal collection costs. As a result, the inflation tax becomes an increasing function of government spending. Furthermore, the more inefficient the tax-collection system is, the larger is the rise in the nominal interest rate for a given increase in government spending. A numerical analysis of the model provides additional insights into these relationships.
Volume (Year): 36 (1989)
Issue (Month): 3 (September)
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