The Implications of the Incursion of Cryptocurrency on the Effectiveness of Fiscal Policy

Osiebuni Collins Obu and Wilfred I. Ukpere
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Osiebuni Collins Obu: Department of Economics and Business Administration, NHH Norwegian School of Economic, Norway
Wilfred I. Ukpere: Department of Industrial Psychology and People Management, School of Management, College of Business & Economic, University of Johannesburg, South Africa

Review of Applied Socio-Economic Research, 2022, vol. 23, issue 1, 134-150

Abstract: Existing literature has examined a plethora of factors that can affect the effectiveness, performance, or nature of fiscal policy in an economy. In this paper, we build on the fundamental tenets of micro-economic models to examine the potential ways cryptocurrencies can affect the effectiveness of a country’s fiscal policy. Our finding is that under the assumptions of an absence of uncertainties, perfectly competitive markets, household utility maximization, and usage of public money and cryptocurrency, the government purchases as well as the ability of the government to raise funds by issuing bonds and by taxation is decreasing in new investments in cryptocurrencies but increasing in the income earned from cryptocurrencies. We go further to discuss the factors that account for the sustained ability of cryptocurrencies to weaken the state’s fiscal-policy capabilities and possible ways the effects of cryptocurrencies on the state’s fiscal integrity can be mitigated.

Keywords: Cryptocurrency; Effectiveness; Fiscal Policy; Micro-economic models; Technology (search for similar items in EconPapers)
JEL-codes: E62 F36 F65 (search for similar items in EconPapers)
Date: 2022
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