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Seigniorage and tax smoothing in the United States: 1914-1986


  • Carl E. Walsh
  • Bharat Trehan


Models in which fiscal and monetary authorities cooperate to minimize the distortionary costs of raising revenue to finance an exogenous stream of government expenditures are shown to have implications for the long-run relationships between government expenditures, tax revenues and seigniorage. First, tax and seigniorage revenue should be cointegrated. Second, the cointegrating vector linking taxes and seigniorage should be only one of the cointegrating vectors linking expenditures, tax revenues and seigniorage. Third, the deficit net-of-interest should be nonstationary. These implications are tested using annual U.S. data from the period 1914 to 1986. The data reject all three implications of the theory.

Suggested Citation

  • Carl E. Walsh & Bharat Trehan, 1988. "Seigniorage and tax smoothing in the United States: 1914-1986," Working Papers in Applied Economic Theory 88-05, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfap:88-05

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    References listed on IDEAS

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    Cited by:

    1. Tahsin SAADI SEDIK, 2003. "Optimal Seigniorage in Developing Countries: An Empirical Investigation," Working Papers 200307, CERDI.
    2. Luo, Yulei & Nie, Jun & Young, Eric R., 2014. "Model uncertainty and intertemporal tax smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 289-314.
    3. Hakan Berument, 1997. "Financing divided governments," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 369-372.
    4. David R. Stockman, 2001. "Balanced-Budget Rules: Welfare Loss and Optimal Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 438-459, July.
    5. Antonio Noriega & Carlos Capistrán & Manuel Ramos-Francia, 2013. "On the dynamics of inflation persistence around the world," Empirical Economics, Springer, vol. 44(3), pages 1243-1265, June.
    6. Hirte, Georg, 2001. "Pension Policies for an Aging Society," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 14, number urn:isbn:9783161475399.
    7. Evan Tanner & Issouf Samake, 2008. "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 149-182, April.
    8. Gogas, Periklis & Serletis, Apostolos, 2005. "The revenue smoothing hypothesis in an ARIMA Framework: Evidence from the United States, in Claude Diebolt, Catherine Kyrtsou et al. (eds.), New Trends in Macroeconomics," MPRA Paper 1464, University Library of Munich, Germany.
    9. Evan C Tanner & Yasser Abdih, 2009. "Frugality; Are We Fretting Too Much? Household Saving and Assets in the United States," IMF Working Papers 09/197, International Monetary Fund.
    10. Michael D. Bordo & Eugene N. White, 1990. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
    11. Roberto Ricciuti, 2008. "The quest for a fiscal rule: Italy, 1861–1998," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 2(3), pages 259-274, October.
    12. Amano, Robert A., 1998. "On the Optimal Seigniorage Hypothesis," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 295-308, April.
    13. Roberto Ricciuti, 2004. "Nonlinearity in testing for fiscal sustainability," Money Macro and Finance (MMF) Research Group Conference 2003 80, Money Macro and Finance Research Group.
    14. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI).

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