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Government Spending and Inflationary Finance: A Public Finance Approach
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 1988: Issue 098
Language:
English
Publication Date:
01 Jan 1988
DOI:
https://doi.org/10.5089/9781451949025.001
ISBN:
9781451949025
ISSN:
1018-5941
Pages:
34
Keywords:
WP; government spending; nominal interest rate; inflation tax
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper analyzes the relationship between inflation tax and the level of government spending in a public finance context. The key feature of the model developed is that it recognizes the possibility that conventional taxes, such as the consumption tax, may carry increasing marginal collection costs. As a result, and unlike previous findings in the literature, the inflation tax becomes an increasing function of government spending. Furthermore, the more inefficient the tax collection system, the larger the increase in the inflation tax for a given increase in government spending. A numerical analysis of the model provides additional insights into these relationships.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1988: Issue 098