The dynamic welfare cost of seignorage tax and consumption tax in a neoclassical growth model with a cash-in-advance constraint

Chia-Hui Lu, Been-Lon Chen and Mei Hsu

Journal of Macroeconomics, 2011, vol. 33, issue 2, 247-258

Abstract: Using a public finance approach, this study investigates welfare costs between seignorage and consumption taxes in a standard growth model. One of these two taxes is used to finance exogenous public spending to balance the government budget. The steady-state welfare cost of consumption taxes is lower if the consumption effect dominates the leisure effect. This paper compares equilibrium along transitional dynamic and steady-state paths and finds that because of lower consumption and leisure and thus higher welfare costs of consumption taxes during early periods, the welfare cost of consumption taxes is larger than the welfare cost of seignorage taxes.

Keywords: Growth; model; Cash-in-advance; Seignorage; tax; Consumption; tax; Welfare; cost (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:33:y:2011:i:2:p:247-258

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