Government Spending and Inflationary Finance: A Public Finance Approach

34 Pages Posted: 15 Feb 2006

See all articles by Carlos A. Vegh

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER)

Date Written: November 7, 1988

Abstract

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.

JEL Classification: 321, 323

Suggested Citation

Vegh, Carlos A., Government Spending and Inflationary Finance: A Public Finance Approach (November 7, 1988). IMF Working Paper No. 88/98, Available at SSRN: https://ssrn.com/abstract=885082

Carlos A. Vegh (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

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Washington, DC 20036-1984
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University of Maryland - Department of Economics ( email )

College Park, MD 20742
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University of California at Los Angeles ( email )

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310-825-9528 (Fax)

HOME PAGE: http://vegh.sscnet.ucla.edu

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