The Optimal Mix of Taxes on Money, Consumption and Income

34 Pages Posted: 27 Feb 2003

See all articles by Fiorella De Fiore

Fiorella De Fiore

Bank for International Settlements (BIS) - Monetary and Economic Department

Pedro Teles

Federal Reserve Bank of Chicago; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2002

Abstract

In this paper we determine the optimal combination of taxes on money, consumption and income in transactions technology models. We show that the optimal policy does not tax money, regardless of whether the government can use the income tax, the consumption tax, or the two taxes jointly. These results are at odds with recent literature. We argue that the reason for this divergence is an inappropriate specification of the transactions technology adopted in the literature.

Keywords: Friedman rule, inflation tax, transactions technology

JEL Classification: E31, E41, E58, E62

Suggested Citation

De Fiore, Fiorella and Teles, Pedro, The Optimal Mix of Taxes on Money, Consumption and Income (June 2002). ECB Working Paper No. 135, FRB Chicago Working Paper No. 2002-03, Available at SSRN: https://ssrn.com/abstract=316139 or http://dx.doi.org/10.2139/ssrn.316139

Fiorella De Fiore (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Pedro Teles

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-2947 (Phone)
312-322-2357 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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