Monetary Policy, Fiscal Policy, and the Inflation Tax: Equivalence Results

28 Pages Posted: 24 Mar 2003

See all articles by Joydeep Bhattacharya

Joydeep Bhattacharya

Iowa State University - Department of Economics

Joseph Haslag

University of Missouri at Columbia - Department of Economics

Steven H. Russell

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

Abstract

This paper clarifies and extends previous work on the equivalence between monetary regimes and fiscal regimes involving social security systems. We show that monetary regimes involving currency and unbacked bonds, with or without reserve requirements, are equivalent to one or both of two alternative types of social security regimes. One implication of our results is that financing a real expenditure by increasing the inflation rate is equivalent, across regimes, to financing the expenditure by increasing the tax rate on social security benefits. Another implication is that a wide range of monetary policy actions are equivalent, across regimes, to fiscal policy actions that change the scale of the social security system and the tax rates on social security benefits and/or bank deposits.

Keywords: equivalence, monetary policy, social security

JEL Classification: E60, E63, E31, E21

Suggested Citation

Bhattacharya, Joydeep and Haslag, Joseph and Russell, Steven H., Monetary Policy, Fiscal Policy, and the Inflation Tax: Equivalence Results (May 2002). Available at SSRN: https://ssrn.com/abstract=321098 or http://dx.doi.org/10.2139/ssrn.321098

Joydeep Bhattacharya (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-5886 (Phone)
515-294-0221 (Fax)

Joseph Haslag

University of Missouri at Columbia - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

Steven H. Russell

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics ( email )

425 University Boulevard 523 Cavanaugh Hall
Indianapolis, IN 46202
United States
317-274-0420 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
136
Abstract Views
1,341
Rank
381,245
PlumX Metrics