The Optimal Collection of Seigniorage: Theory and Evidence
27 Pages Posted: 16 Jul 2004 Last revised: 16 Sep 2022
Date Written: May 1987
This paper presents and tests a positive theory of monetary and fiscal policy. The government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint. The theory implies that nominal interest rates and inflation are random walks. It also implies that nominal interest rates and inflation move together with tax rates. United States data from 1952 to 1985 provide some support for the theory.
Suggested Citation: Suggested Citation