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Government Expenditure Financing in an Endogenous Growth Model: A Comparison

Theodore Palivos and Chong Yip

Journal of Money, Credit and Banking, 1995, vol. 27, issue 4, pages 1159-78

Abstract: This paper develops a generalized cash-in-advance model of endogenous growth to assess the relative merits of money and income-tax financing of a constant share of government expenditure in GNP. The authors find that money financing (seigniorage) leads to higher growth and inflation rates, pointing out to a trade-off between growth and inflation. Nevertheless, they also find that the financing policy that maximizes welfare is, in general, a mix of the two methods, with the weights depending crucially on the fraction of investment purchases that are subject to the cash-in-advance constraint. Copyright 1995 by Ohio State University Press.

Date: 1995
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Related works:
Working Paper: Government Expenditure Financing in an Endogenous Growth Model: A Comparison (1995)
Working Paper: Government expenditure financing in an endogenous growth model: a comparison (1994)
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