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Money, Neutrality of Consumption Taxes, and Growth in Intertemporal Optimizing Models

Money, Neutrality of Consumption Taxes, and Growth in Intertemporal Optimizing Models Abstract This paper considers the effects of a proportional consumption tax with the same rate over time on the real growth path of a monetary economy. The analysis uses a variety of stylized monetary growth models in which the individual’s consumption-saving decision is based on intertemporal utility maximization (e.g. the money-in-utility, transaction-costs, and cash-in-advance models). The neutrality of consumption taxation depends on the assumed role of money in the respective models, even though the tax revenue collected is fully rebated to consumers as lump-sum transfers. The consumption tax is generally superior to inflation tax (i.e. the rate of monetary growth) in terms of steady-state welfare, as long as the labour supply is fixed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

Money, Neutrality of Consumption Taxes, and Growth in Intertemporal Optimizing Models

Itaya, Jun-Ichi
The Japanese Economic Review , Volume 49 (4): 17 – Dec 1, 1998
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References (24)

Publisher
Springer Journals
Copyright
1998 Japanese Economic Association
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1111/1468-5876.00092
Publisher site
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Abstract

Abstract This paper considers the effects of a proportional consumption tax with the same rate over time on the real growth path of a monetary economy. The analysis uses a variety of stylized monetary growth models in which the individual’s consumption-saving decision is based on intertemporal utility maximization (e.g. the money-in-utility, transaction-costs, and cash-in-advance models). The neutrality of consumption taxation depends on the assumed role of money in the respective models, even though the tax revenue collected is fully rebated to consumers as lump-sum transfers. The consumption tax is generally superior to inflation tax (i.e. the rate of monetary growth) in terms of steady-state welfare, as long as the labour supply is fixed.

Journal

The Japanese Economic Review – Springer Journals

Published: Dec 1, 1998

Keywords: economics, general; microeconomics; macroeconomics/monetary economics//financial economics; econometrics; development economics; economic history

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