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

Joydeep Bhattacharya (), Steven Russell and Joseph Haslag ()

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: This paper clarifies and extends previous work on the equivalence between monetary regimes and fiscal regimes involving social security systems. We show that monetary regimes of the type we study are equivalent to two alternative types of social security regimes. This result has two important implications. One is that financing a real expenditure by increasing the inflation rate is equivalent, across regimes, to financing the expenditure by increasing the tax rate on social security benefits. The other is that a wide range of monetary policy actions are equivalent, across regimes, to fiscal policy actions that change the scale of the social security system and the tax rates on social security benefits and/or bank deposits.

JEL-codes: E6 (search for similar items in EconPapers)
Date: 2003-03-27

Published in Macroeconomic Dynamics, 2003, Vol. 7, No. 5, pp. 647-669.

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Journal Article: MONETARY POLICY, FISCAL POLICY, AND THE INFLATION TAX: EQUIVALENCE RESULTS (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:10249

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