Seigniorage in a Cross-Section of Countries

Empirical investigation of the average level of seigniorage in a cross-section of (up to) ninety countries for the period 1971-90 suggests that optimum tax theory explains up to 40 percent of the cross-country variation in seigniorage, since seigniorage is higher where its deadweight losses are probably lower and where deadweight losses from conventional taxation are probably higher, but that average government spending is not a determinant of seigniorage. Practical concerns about financing transitory government spending explain some of the remaining variation in seigniorage, and central bank independence and political instability are useful as well. In contrast, 90 percent of the cross-country variation in conventional taxation appears to be determined by the level of government spending and deadweight losses, and additional variables do not add to the results.