Abstract

http://ssrn.com/abstract=115128
 
 

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Can Taxes and Bonds Finance Government Spending?


Stephanie Bell


University of Missouri at Kansas City - Economics


Levy Economics Institute Working Paper No. 244

Abstract:     
This paper investigates the commonly held belief that government spending is normally financed through a combination of taxes and bond sales. The argument is a technical one and requires a detailed analysis of reserve accounting at the central bank. After carefully considering the complexities of reserve accounting, it is argued that the proceeds from taxation and bond sales are technically incapable of financing government spending and that modern governments actually finance all of their spending through the direct creation of high-powered money. The analysis carries significant implications for fiscal as well as monetary policy.

Number of Pages in PDF File: 28

JEL Classification: H61, H63

working papers series





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Date posted: August 14, 1998  

Suggested Citation

Bell, Stephanie, Can Taxes and Bonds Finance Government Spending?. Levy Economics Institute Working Paper No. 244. Available at SSRN: http://ssrn.com/abstract=115128 or http://dx.doi.org/10.2139/ssrn.115128

Contact Information

Stephanie A. Bell (Contact Author)
University of Missouri at Kansas City - Economics ( email )
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