The dynamic welfare cost of seignorage tax and consumption tax in a neoclassical growth model with a cash-in-advance constraint

Chia Hui Lu, Been Lon Chen, Mei Hsu

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

Using a public finance approach, this study investigates welfare costs between seignorage and consumption taxes in a standard growth model. One of these two taxes is used to finance exogenous public spending to balance the government budget. The steady-state welfare cost of consumption taxes is lower if the consumption effect dominates the leisure effect. This paper compares equilibrium along transitional dynamic and steady-state paths and finds that because of lower consumption and leisure and thus higher welfare costs of consumption taxes during early periods, the welfare cost of consumption taxes is larger than the welfare cost of seignorage taxes.

Original languageEnglish
Pages (from-to)247-258
Number of pages12
JournalJournal of Macroeconomics
Volume33
Issue number2
DOIs
Publication statusPublished - 2011 Jun 1
Externally publishedYes

Keywords

  • Cash-in-advance
  • Consumption tax
  • Growth model
  • Seignorage tax
  • Welfare cost

ASJC Scopus subject areas

  • Economics and Econometrics

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