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Money for taxes

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  • Bonfatti, Roberto
  • Brzezinski, Adam
  • Karaman, Kivanc
  • Palma, Nuno

Abstract

We develop a model showing that monetisation and fiscal capacity are complements in imperfectly monetised economies. A positive shock to monetisation increases the efficiency of taxation, and hence the incentive to invest in fiscal capacity. We take this model to the data by investigating an exogenous shock to Europe’s monetisation: the inflow of precious metals from the Americas during 1550-1790. Our causal estimates indicate that increases in monetisation led to gradual and persistent increases in fiscal capacity in England, France and Spain.

Suggested Citation

  • Bonfatti, Roberto & Brzezinski, Adam & Karaman, Kivanc & Palma, Nuno, 2020. "Money for taxes," CEPR Discussion Papers 15299, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:15299
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    References listed on IDEAS

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    Cited by:

    1. Karaman, K. Kıvanç & Pamuk, Şevket & Yıldırım-Karaman, Seçil, 2020. "Money and monetary stability in Europe, 1300–1914," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 279-300.
    2. Chen, Yao & Palma, Nuno & Ward, Felix, 2021. "Reconstruction of the Spanish money supply, 1492–1810," Explorations in Economic History, Elsevier, vol. 81(C).
    3. Nuno Palma, 2019. "American Precious Metals and their Consequences for Early Modern Europe," Working Papers 0174, European Historical Economics Society (EHES).

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    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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