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Fiscal Policies, Spending Policies and Conflicting Aims

In: Sovereign Debt Crisis

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  • Dimitris N. Chorafas

Abstract

Few people really appreciate that the state has no money of its own. The money it has in its Treasury comes from two sources: taxation and the central bank’s printing press – in other words, inflation. The first is the object of the government’s fiscal policies; the second, that of the central bank’s monetary policies, as well as of the politicians’ pressures. The two correlate because the difference between the money the government gets through a reasonable level of citizen taxation and its unwisely assumed huge commitments – from entitlements to foreign aid and military expenditures – is made up by the printing press, as well as by increases in all sorts of taxes. ‘We must tax the poor,’ André Tardieu, a French radical socialist prime minister, said in 1930. ‘They are the most numerous.’ Indeed, so it is. Value added tax (VAT) picks up a hefty share of private money for the government and it is paid by both rich and poor.

Suggested Citation

  • Dimitris N. Chorafas, 2011. "Fiscal Policies, Spending Policies and Conflicting Aims," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Sovereign Debt Crisis, chapter 6, pages 99-116, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-30712-4_6
    DOI: 10.1057/9780230307124_6
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