Money for taxes

Roberto Bonfatti, Adam Brzezinski, Kıvanç Karaman and Nuno Palma

No 15299, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a model showing that monetisation and fiscal capacity are complements in imperfectly monetised economies. A positive shock to monetisation increases the efficiency of taxation, and hence the incentive to invest in fiscal capacity. We take this model to the data by investigating an exogenous shock to Europe’s monetisation: the inflow of precious metals from the Americas during 1550-1790. Our causal estimates indicate that increases in monetisation led to gradual and persistent increases in fiscal capacity in England, France and Spain.

Keywords: Inflation; Taxation; Quantity theory of money; Monetary non-neutrality; Monetary capacity; Fiscal capacity (search for similar items in EconPapers)
JEL-codes: E50 E60 H21 N10 O11 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-his, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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