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Government expenditure financing in an endogenous growth model: a comparison

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  • Theodore Palivos
  • Chong K. Yip

Abstract

This paper develops a generalized cash-in-advance model of endogenous growth to assess the relative merits of money and income-tax financing of a constant share of government expenditure in GNP. The authors find that money financing (seigniorage) leads to higher growth and inflation rates, pointing out to a trade-off between growth and inflation. Nevertheless, they also find that the financing policy that maximizes welfare is, in general, a mix of the two methods, with the weights depending crucially on the fraction of investment purchases that are subject to the cash-in-advance constraint. Copyright 1995 by Ohio State University Press.
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Suggested Citation

  • Theodore Palivos & Chong K. Yip, 1994. "Government expenditure financing in an endogenous growth model: a comparison," FRB Atlanta Working Paper 94-1, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:94-1
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    Keywords

    Macroeconomics ; Finance; Public;

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