Optimality of the Friedman Rule in Economies with Distorting Taxes

27 Pages Posted: 10 Jul 2007 Last revised: 24 Aug 2022

See all articles by Varadarajan V. Chari

Varadarajan V. Chari

University of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1993

Abstract

We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on preferences similar to those in the public finance literature on optimal uniform commodity taxation. We show that there is no connection between our results and the result in the standard public finance literature that intermediate goods should not be taxed.

Suggested Citation

Chari, Varadarajan V. and Christiano, Lawrence J. and Kehoe, Patrick J., Optimality of the Friedman Rule in Economies with Distorting Taxes (August 1993). NBER Working Paper No. w4443, Available at SSRN: https://ssrn.com/abstract=480244

Varadarajan V. Chari (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

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Lawrence J. Christiano

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Federal Reserve Bank of Minneapolis

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National Bureau of Economic Research (NBER)

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Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department ( email )

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University of Minnesota - Twin Cities - Department of Economics ( email )

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Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER) ( email )

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United States

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