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The Check Tax: Fiscal Folly and The Great Monetary Contraction

The Journal of Economic History (1997)

27 Pages Posted: 19 May 1997  

William D. Lastrapes

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

George Selgin

University of Georgia

Abstract

Although its role has been overlooked by monetary historians, a two-cent tax on bank checks effective from June 1932 through December 1934 appears to have been an important contributing factor to that period's severe monetary contraction. According to our estimates, the currency-demand deposit ratio was about 15 percent larger, and the M1 money stock about 12 percent smaller, ceteris paribus, than each would have been in the absence of the tax. The contractionary consequences of the check tax had in fact been anticipated by many legislators who were, nevertheless, unable to prevent the measure from being included in the Revenue Act of 1932.

JEL Classification: E31, E51, N12

Suggested Citation

Lastrapes, William D. and Selgin, George, The Check Tax: Fiscal Folly and The Great Monetary Contraction. The Journal of Economic History (1997). Available at SSRN: https://ssrn.com/abstract=33320 or http://dx.doi.org/10.2139/ssrn.33320

William D. Lastrapes (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Terry College of Business
Athens, GA 30602-6254
United States
706-542-3569 (Phone)
706-542-3376 (Fax)

George Selgin

University of Georgia ( email )

Athens, GA 30602
United States
706-542-2734 (Phone)

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