Monetary Policy, Fiscal Policy, and the Inflation Tax: Equivalence Results

This paper clariÞes and extends previous work on the equivalence between monetary regimes and Þscal regimes involving social security systems. We consider equivalence across regimes, showing that monetary regimes are equivalent to one or both of two alter- native types of social security regimes. Two implications emerge. One is that Þnanciing a real expenditure by increasing the inßation rate is equivalent, across regimes, to Þnancing the expenditure by increasing the tax rate on social security beneÞts. In addition, our results imply that a wide range of monetary policy actions are equivalent, across regimes, to Þscal policy actions that change the scale of the social security system and the tax rates on social security beneÞts and/or bank deposits.