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Threshold Effects in Monetary and Fiscal Policies in a Growth Model : Assessing the Importance of the Financial System

Author

Listed:
  • Alexandru Minea

    (LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

  • Patrick Villieu

    (LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

We extend the [Barro, R., 1990. Government spending in a simple model of economic growth. Journal of Political Economy 98, 103-125] model to money financing of public expenditures, in a setup where money demand is motivated by a "transaction cost" technology, exhibiting the "cash-in-advance" specification as a special case, in the spirit of [Palivos, T., Yip, C., 1995. Government expenditure financing in an endogenous growth model: a comparison. Journal of Money, Credit and Banking 27, 1159-1178]. Allowing for productive public spending yields threshold effects between long-run growth and both income taxation and seigniorage, thus reproducing recent stylized facts. Moreover, in the cash-in-advance special case, we show that, to maximize long-run growth and/or welfare, government must use seigniorage-only or taxes only, depending on parameters, and in particular on the degree of financial development. In contrast, the general form of money demand motivated by a "transaction cost" technology produces interior solutions in which both seigniorage and taxes are used. An empirical section confirms our theoretical results.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alexandru Minea & Patrick Villieu, 2008. "Threshold Effects in Monetary and Fiscal Policies in a Growth Model : Assessing the Importance of the Financial System," Post-Print halshs-00364855, HAL.
    • Handle: RePEc:hal:journl:halshs-00364855
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    Cited by:

    1. Eleftherios Goulas & Athina Zervoyianni, 2012. "Growth, Deficits and Uncertainty in a Panel of 28 Countries," Working Paper series 52_12, Rimini Centre for Economic Analysis.
    2. Alexandru MINEA & Hélène EHRHART & Patrick VILLIEU, 2009. "Deficit, Seigniorage and the Growth Laffer Curve in developing countries," Working Papers 200926, CERDI.
    3. Eleftherios Goulas & Athina Zervoyianni, 2013. "Growth, Deficits and Uncertainty: Theoretical Aspects and Empirical Evidence," Working Paper series 53_13, Rimini Centre for Economic Analysis.
    4. Yannick Lucotte, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," Post-Print halshs-00505140, HAL.
    5. Jiang Youxue & Shimei, 2022. "How digital finance affects income distribution: Evidence from 280 cities in China," PLOS ONE, Public Library of Science, vol. 17(5), pages 1-19, May.
    6. Apeti, Ablam Estel & Combes, Jean-Louis & Minea, Alexandru, 2023. "Inflation targeting and the composition of public expenditure: Evidence from developing countries," Journal of Macroeconomics, Elsevier, vol. 76(C).
    7. Ehrhart, Hélène & Minea, Alexandru & Villieu, Patrick, 2014. "Debt, seigniorage, and the Growth Laffer Curve in developing countries," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 199-210.
    8. Goulas, Eleftherios & Zervoyianni, Athina, 2013. "Growth, deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 380-392.
    9. Lucotte, Yannick, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," MPRA Paper 23871, University Library of Munich, Germany.
    10. Minea, Alexandru & Villieu, Patrick, 2009. "Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 304-319, June.
    11. Minea, Alexandru & Villieu, Patrick, 2010. "Financial development, institutional quality and maximizing-growth trade-off in government finance," Economic Modelling, Elsevier, vol. 27(1), pages 324-335, January.
    12. Jean-Louis COMBES & Pascale COMBES MOTEL & Alexandru MINEA & Patrick VILLIEU, 2010. "Disinflation against the Environment? An application to the trade-off between seigniorage and deforestation," Working Papers 201014, CERDI.
    13. Réda Marakbi & Patrick Villieu, 2020. "Corruption, tax evasion, and seigniorage in a monetary endogenous growth model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 2019-2050, December.
    14. Alexandru Minea & Patrick Villieu, 2009. "Impôt, déficit et croissance économique : un réexamen de la courbe de Laffer," Revue d'économie politique, Dalloz, vol. 119(4), pages 653-675.

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