Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system - Archive ouverte HAL Access content directly
Journal Articles Journal of Macroeconomics Year : 2009

Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system

Patrick Villieu

Abstract

We extend the [Barro, R., 1990. Government spending in a simple model of economic growth. Journal of Political Economy 98, 103–125] model to money financing of public expenditures, in a setup where money demand is motivated by a ‘‘transaction cost” technology, exhibiting the ‘‘cash-in-advance” specification as a special case, in the spirit of [Palivos, T., Yip, C., 1995. Government expenditure financing in an endogenous growth model: a comparison. Journal of Money, Credit and Banking 27, 1159–1178]. Allowing for productive public spending yields threshold effects between long-run growth and both income taxation and seigniorage, thus reproducing recent stylized facts. Moreover, in the cash-in-advance special case, we show that, to maximize long-run growth and/or welfare, government must use seigniorage-only or taxes only, depending on parameters, and in particular on the degree of financial development. In contrast, the general form of money demand motivated by a ‘‘transaction cost” technology produces interior solutions in which both seigniorage and taxes are used. An empirical section confirms our theoretical results.
No file

Dates and versions

hal-00387507 , version 1 (25-05-2009)

Identifiers

  • HAL Id : hal-00387507 , version 1

Cite

Alexandru Minea, Patrick Villieu. Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system. Journal of Macroeconomics, 2009, 31, pp.304-319. ⟨hal-00387507⟩
71 View
0 Download

Share

Gmail Facebook X LinkedIn More