Monetary Capacity

Adam Brzezinski, Roberto Bonfatti, Kıvanç Karaman and Nuno Palma

No 926, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Monetary capacity refers to a state’s capacity to circulate money that is accepted by the public, while fiscal capacity refers to its capacity to tax. We argue that monetary and fiscal capacity, and by extension, markets and states are complements. The long-run European evidence since antiquity shows money stocks and tax revenues moving in close synch. History also offers a natural experiment to estimate the causal effect of monetary capacity on fiscal capacity. The discovery of silver in the New World increased money stocks followed by tax revenues, a finding that is robust to controlling for economic growth.

Keywords: monetary capacity; fiscal capacity; monetization; inflation; taxation; quantity theory of money; monetary non-neutrality (search for similar items in EconPapers)
JEL-codes: E50 E60 H21 N10 O11 (search for similar items in EconPapers)
Date: 2020-11-16
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac, nep-mon and nep-ore
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Related works:
Working Paper: Monetary Capacity (2025)
Working Paper: Monetary Capacity (2020)
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