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The non‐monotonic relationship between seigniorage and inequality
Author(s) -
Bhattacharya Joydeep,
Bunzel Helle,
Haslag Joseph
Publication year - 2005
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/j.0008-4085.2005.00290.x
Subject(s) - seigniorage , economics , inflation tax , monetary economics , inflation (cosmology) , overlapping generations model , asset (computer security) , value (mathematics) , revenue , microeconomics , monetary policy , finance , physics , computer security , machine learning , theoretical physics , computer science
. We present an analysis of how political factors may come into play in the equilibrium determination of inflation. We employ a standard overlapping generations model with heterogenous young‐age endowments, and a government that funds an exogenous spending via a combination of non‐distortionary income taxes and the inflation tax. Agents have access to two stores of value: fiat money and an inflation‐shielded, yet costly, asset. The model predicts that the relationship between elected reliance on the inflation tax (for revenue) and income inequality may be non‐monotonic. We find robust empirical backing for this hypothesis from a cross‐section of countries. JEL classification: E5, P16