Optimum Inflation, Taxation and Monetary Arrangements in the Open Economy

Peter Sinclair

Chapter 9 in International Trade and Labour Markets, 1997, pp 203-218 from Palgrave Macmillan

Abstract: Abstract Any government’s expenditure needs should ideally be met from lumpsum taxes. Taxes on labour earnings distort labour supply. They contravene the Pareto-efficiency principle requiring equally between the marginal product of labour and the marginal rate of substitution between leisure and consumption. Equiproportionate sales taxes on different consumption goods have just the same effect. We know, too, that taxing money balances is distortionary. In a first-best, money should be left untaxed. That requires a monetary policy that engineers a long-run rate of decline in nominal prices equal to the real rate of interest.1

Keywords: Monetary Policy; Median Voter; Monetary Union; Money Demand; Nominal Interest Rate (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-14577-5_9

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DOI: 10.1007/978-1-349-14577-5_9

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