The revenuemaximizing steadystate in ation rate an important theoretical concept is the revenuemaximizing steadystate in. The inflationseigniorage link should be in the form of a laffer curve and my results confirm this hypothesis. The goal of this study is to test the implication of optimal seigniorage theory that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates. Figure 1 also says that during high and volatile inflation periods, due to losses in real money balances, i. The authors think that in the presence of corruption, the use of public finance may result in inflationary effect that leads to higher level of inflation, which in turn affects the whole economy. Seigniorage where does it come from and who gets it. The goal of this study is to test the implication of mankivs 1987 optimal seigniorage theory suggesting that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates for turkish economy using time series dataset for the time period 19802011. With fewer deposits, the seigniorage tax base declines. Seigniorage has also got nothing to do with inflationdeflation, tax, interest or anyting else construed in the article. Monetary seigniorage is defined as the whole amount of seigniorage generated. Third, ongoing and proposed financial sector liberalization measureswhile desirable on efficiency groundswill likely have a negative impact on the chinese governments ability to earn seigniorage in the future. This study therefore investigated the seig inflation and confirmed the existence of seigniorage laffer curve in ghana. Economists regard seigniorage as a form of inflation tax, returning resources to the currency issuer.
One way to do this is to assume that the real quantity of moneywhich for seigniorage revenue is the tax baseis a function of its real rate of return. Mar 24, 2020 seigniorage is the difference between the value of money and the cost to produce it in other words, its the economic cost of producing a currency within a given economy or country. A quadratic estimation technique following samimi estimation. Seigniorage has also got nothing to do with inflation deflation, tax, interest or anyting else construed in the article. Seigniorage is essentially a tax on every dollar accepted anywhere as an interestfree loan to the treasury. Furthermore, the measures they employ to calculate inflation tax and seigniorage are questioned. Governments may finance its expenditures through multiple resources. Money creation, reserve requirements, and seigniorage. Fiscal seigniorage is defined as the revenue after allowances for different sorts of cost from the provision of the currency have been made. Pdf this research analyzes the changes of seigniorage and inflation tax in mexico during the last decades associated with the excess liquidity that.
The inflationprone countries would gain from greater financial discipline because the. Seigniorage, once relied on too heavily to finance the government deficit, can easily lead to hyperinflation. Seigniorage is the difference between the value of money and the cost to produce it in other words, its the economic cost of producing a currency within a given economy or country. Seigniorage income has been falling since 2008, in line with a decline in euro area interest rates. The productivity of the inflation tax can be analysed by comparing the revenue actually raised from inflation tax with the revenue that could be raised if the quantity of money had risen at a constant rate. Inflation of the money supply causes a general rise in prices, due to the currencys reduced purchasing power. This paper uses new data from zimbabwe to investigate money demand under hyperinflation using an autoregressive distributedlag model for the period 19802008. Comparative information on oecd, 2015 and other advanced and emerging economies. A distinct but related concept to seigniorage and central bank revenue is the inflation tax.
Their findings base on opportunity cost and inflation tax definitions of seigniorage 3 indicate that central bank seigniorage in 1993 was about 30% of gdp in romania due to the high inflation rate, and 4% of gdp in. The purpose of this paper is to examine how seigniorage in the economy of argentina economy between. Second and more importantly, the rcc has the power to set the global inflation rate and thereby impose an inflation tax on the rest of the world. For this purpose, we examine the long run relationship between nominal interest rates, inflation and tax revenue using time series dataset for turkish economy for the period. A singleperiod analysis therefore provides a misleading guide for a profitmaximizing currency monopolist. The government profits at the expense of the consuming public scott, 1997. Inflation and seigniorage in argentina english the. The revenuemaximizing steadystate in ation rate an important theoretical concept. In economies with little seigniorage, this cost will be negligible. A distinct but related concept to seigniorage and central bank revenue is the inflation tax, 3s. What is the executive giving up by adopting the euro. The effect of corruption, seigniorage and borrowing on.
However, this benefit comes with a cost of higher output and spending deviations. In this regard the rcc faces a choice to maximize seigniorage by increasing the demand for international reserves or to maximize the revenue from inflation or perhaps a third alternative combining both. Only economists could come up with such overcomplicated rubbish. Observe that seigniorage need not equal in ation tax revenue, which is. Seigniorage adds to the money supply and can cause inflation, so it is sometimes. The inflationseigniorage link is a significant problem in monetary economics as it relates to maximizing government revenues from the printing of money and the possibility of hyperinflation from the excessive pursuit of seigniorage. Feb 12, 20 inflation tax or seigniorage making the currency weak by printing a lot of money which devalues the currency and inflates the economy and hence results in financial loss of value for the cash holders is known as inflation tax or seigniorage. In short, at present seigniorage can be said to be the. Issuing new currency, rather than collecting taxes paid with existing money, is considered a tax on holders of existing currency. A distinct but related concept to seigniorage and central bank revenue is the inflation tax, s3. Evidence the theory of optimal seigniorage can be interpreted as prescriptive. Gros 2004 shows that for the euro area as a whole, seigniorage represents less than one quarter of 1% of gdp. Romania, hungary, the czech republic, austria and germany.
Inflation and seigniorage in argentina ingles resumo. The inflation tax is the reduction in the real value of the stock of base money caused by inflation. Essentially, inflation is a form of indirect income tax, since it causes a decline in the purchasing power of the publics income. Inflation tax is not related to any kind of direct tax. May 19, 2014 a distinct but related concept to seigniorage and central bank revenue is the inflation tax, 3s. We examine the long run relationship between nominal interest rates, inflation and. We examine the long run relationship between nominal interest.
Seigniorage revenue and inflation tax in turkish economy. Inflation and seigniorage in argentina english abstract. Seigniorage as an unlimited source of government revenue. See the oecd, 2015 publication entitled tax administration 2015. This paper is concerned with measuring the seigniorage in romania since the fall of communism and the potential gains after passing to euro. Korap 2006 have investigated the courses of inflation tax and seigniorage revenue for policy makers of the turkish economy. The third concept of measuring seigniorage applies. Seigniorage definition of seigniorage by the free dictionary. Inflation and seigniorage in argentina english the world bank.
Financing budget deficit by central bank seigniorage in. Seigniorage has got nothing to do with gold, as gold has nothing to do with money, this lie is getting very old indeed, at least 5000 years old. Inflation and inflation tax in developing countries. In addition, if seigniorage decreases, the central bank should be more conservative. Furthermore, considering the high inflation threshold for seigniorage maximization, it would be prudent for ghana to find an alternative source of budget finance that is noninflationary in the longrun. The term seigniorage refers to the revenue a government generates by printing money. Therefore, for these countries their degree of seigniorage is very low. The figure below shows a decline in the inflation tax seigniorage as the inflation increases in pakistan. Seigniorage may serve as a means of paying part of a governments expenses because the new currency can be used to purchase goods and services. The choice of exchange rate regime is thus related to questions discussed in optimal inflation tax analysis. Dynamic seigniorage theory 605 themoneydemandspeci. Inflation and seigniorage in argentina ingles banco mundial. Thus, the growthrate effect translates into a tax base that increases at a slower rate.
If inflation and inflation tax seigniorage are integrated in a graphical form, the figure exhibits the characteristics of a lafer curve. Dollarisation, inflation tax, openness, seigniorage, ghana. Seignioragemoney creation is one potential source of revenue. Seigniorage remained a limited source of real revenue in pakistan. The precise circumstances under which use of the inflation tax is secondbest optimal remain an unsettled issue. Zimbabwe has recently experienced record hyperinflation of 80 billion percent a month. Interestingly, the high seigniorage maximizing level of inf suggests that the economy of ghana is far below the threshold of declining seigniorage revenue. For this purpose, he first constructed the exante seigniorage revenue maximizing inflation model, and then calculated annual inflation tax and seigniorage revenues for the post1980 period turkish economy. According to this theory, governments optimally equate the marginal cost of the inflation tax with that of output taxes, thereby minimizing the distortions to the economy when choosing the optimal combination of taxes to finance their expenditures. Tax efficiency, seigniorage and central bank conservativeness.
The main purpose of an inflation tax is financing government expenditures. Moreover, a higher inflation rate or reserve ratio, for instance, has a onetime reallocative effect, causing households to shift from the bank to the nonbank. When inflation is relatively low and interest rates are determined by the market, it is the second, opportunity cost based, concept that makes the most sense. Seigniorage is usually distinguished into monetary, or gross seigniorage s, and fiscal seigniorage sg, or net seigniorage.
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