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

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  • Jun-Ichi Itaya

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 individual's consumption-saving decision is based on intertemporal utility maximization, such as the money-in-utility, transaction-costs, and cash-in-advance models. The first key result is that the neutrality of the consumption tax may or may not be true, depending on the nature or the role of money in the respective models. The second is that the consumption tax is generally superior to the inflation tax (i.e., the monetary growth rate) in terms of steady state welfare when raising a given amount of revenue.
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  • Jun-Ichi Itaya, 1998. "Money, Neutrality of Consumption Taxes, and Growth in Intertemporal Optimizing Models," The Japanese Economic Review, Japanese Economic Association, vol. 49(4), pages 395-411, December.
    • Handle: RePEc:bla:jecrev:v:49:y:1998:i:4:p:395-411
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    File URL: http://hdl.handle.net/10.1111/1468-5876.00092
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    Cited by:

    1. Kenji Miyazaki & Kiyohiko G. Nishimura & Makoto Saito, 2009. "Incomplete Financial Markets, Irreversibility Of Investments And Fiscal And Monetary Policy Instruments," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 271-300, September.
    2. Afonso, Oscar & Pinho, Mafalda, 2022. "How to reverse a negative asymmetric labor productivity shock in the European Union? A directed technical change analysis with fiscal and monetary policies," Mathematical Social Sciences, Elsevier, vol. 116(C), pages 47-67.
    3. Akihiko Kaneko & Daisuke Matsuzaki, 2009. "Consumption tax and economic growth in an overlapping generations model with money holdings," Journal of Economics, Springer, vol. 98(2), pages 155-175, November.
    4. Wen-ya Chang & Hsueh-fang Tsai & Juin-jen Chang & Kuo-Hao Lee, 2015. "Consumption tax, seigniorage tax and tax switch in a cash-in-advance economy of endogenous growth," Journal of Economics, Springer, vol. 114(1), pages 23-42, January.
    5. Rangan Gupta & Lardo Stander & Andrea Vaona, 2023. "Openness and growth: Is the relationship non‐linear?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3071-3099, July.
    6. Pedro Mazeda Gil & Gustavo Iglésias, 2020. "Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1147-1197, August.
    7. Oscar Afonso, 2023. "Losers and losses of COVID-19: a directed technical change analysis with fiscal and monetary policies," Economic Change and Restructuring, Springer, vol. 56(3), pages 1777-1821, June.

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