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Seigniorage and tax smoothing in the United States 1914-1986

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  • Trehan, Bharat
  • Walsh, Carl E.

Abstract

Models in which fiscal and monetary authorities cooperate to minimize the distortionary costs of raising revenue to finance an exogenous stream of government expenditures are shown to have implications for the long-run relationships between government expenditures, tax revenues and seigniorage. First, tax and seigniorage revenue should be cointegrated. Second, the cointegrating vector linking taxes and seigniorage should be only one of the cointegrating vectors linking expenditures, tax revenues and seigniorage. Third, the deficit net-of-interest should be nonstationary. These implications are tested using annual U.S. data from the period 1914 to 1986. The data reject all three implications of the theory.
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  • Trehan, Bharat & Walsh, Carl E., 1990. "Seigniorage and tax smoothing in the United States 1914-1986," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 97-112, January.
    • Handle: RePEc:eee:moneco:v:25:y:1990:i:1:p:97-112
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    Cited by:

    1. Tahsin SAADI SEDIK, 2003. "Optimal Seigniorage in Developing Countries: An Empirical Investigation," Working Papers 200307, CERDI.
    2. Luo, Yulei & Nie, Jun & Young, Eric R., 2014. "Model uncertainty and intertemporal tax smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 289-314.
    3. David R. Stockman, 2001. "Balanced-Budget Rules: Welfare Loss and Optimal Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 438-459, July.
    4. Antonio Noriega & Carlos Capistrán & Manuel Ramos-Francia, 2013. "On the dynamics of inflation persistence around the world," Empirical Economics, Springer, vol. 44(3), pages 1243-1265, June.
    5. de Jong, F.C.J.M., 1993. "Empirical studies on exchange rate target zones and the microstructure of securities markets," Other publications TiSEM 5dd3028d-662c-415a-ba9d-2, Tilburg University, School of Economics and Management.
    6. Gogas, Periklis & Serletis, Apostolos, 2005. "The revenue smoothing hypothesis in an ARIMA Framework: Evidence from the United States, in Claude Diebolt, Catherine Kyrtsou et al. (eds.), New Trends in Macroeconomics," MPRA Paper 1464, University Library of Munich, Germany.
    7. Calvo, Guillermo A. & Guidotti, Pablo E. & Leiderman, Leonardo, 1991. "Optimal maturity of nominal government debt : The first tests," Economics Letters, Elsevier, vol. 35(4), pages 415-421, April.
    8. Mr. Evan C Tanner & Issouf Samaké, 2006. "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey," IMF Working Papers 2006/295, International Monetary Fund.
    9. Emilio Congregado & Vicente Esteve & Juan A. María A. Prats, 2024. "Optimal public deficit and tax-smoothing in the Spanish economy, 1850-2022," Working Papers 2401, Department of Applied Economics II, Universidad de Valencia.
    10. Roberto Ricciuti, 2008. "The quest for a fiscal rule: Italy, 1861–1998," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 2(3), pages 259-274, October.
    11. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI).
    12. Hafiz Akhand, 1998. "Marginal tax rate and the optimal collection of seigniorage," Applied Economics Letters, Taylor & Francis Journals, vol. 5(12), pages 797-800.
    13. Hakan Berument, 1997. "Financing divided governments," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 369-372.
    14. Hirte, Georg, 2001. "Pension Policies for an Aging Society," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 14, number urn:isbn:9783161475399, September.
    15. Samuel Bonzu, 2022. "Fiscal Policy and Optimal Taxation in Sierra Leone: Testing for Tax Smoothing Hypothesis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(2), pages 1-61, February.
    16. Mr. Evan C Tanner & Mr. Yasser Abdih, 2009. "Frugality: Are We Fretting Too Much? Household Saving and Assets in the United States," IMF Working Papers 2009/197, International Monetary Fund.
    17. Michael D. Bordo & Eugene N. White, 1990. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
    18. Amano, Robert A., 1998. "On the Optimal Seigniorage Hypothesis," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 295-308, April.
    19. Roberto Ricciuti, 2004. "Nonlinearity in testing for fiscal sustainability," Money Macro and Finance (MMF) Research Group Conference 2003 80, Money Macro and Finance Research Group.

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