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The Implications of the Incursion of Cryptocurrency on the Effectiveness of Fiscal Policy

Author

Listed:
  • Osiebuni Collins OBU

    (Department of Economics and Business Administration, NHH Norwegian School of Economic, Norway)

  • Wilfred I. UKPERE

    (Department of Industrial Psychology and People Management, School of Management, College of Business & Economic, University of Johannesburg, South Africa)

Abstract

Existing literature has examined a plethora of factors that can affect the effectiveness, performance, or nature of fiscal policy in an economy. In this paper, we build on the fundamental tenets of micro-economic models to examine the potential ways cryptocurrencies can affect the effectiveness of a country’s fiscal policy. Our finding is that under the assumptions of an absence of uncertainties, perfectly competitive markets, household utility maximization, and usage of public money and cryptocurrency, the government purchases as well as the ability of the government to raise funds by issuing bonds and by taxation is decreasing in new investments in cryptocurrencies but increasing in the income earned from cryptocurrencies. We go further to discuss the factors that account for the sustained ability of cryptocurrencies to weaken the state’s fiscal-policy capabilities and possible ways the effects of cryptocurrencies on the state’s fiscal integrity can be mitigated.

Suggested Citation

  • Osiebuni Collins OBU & Wilfred I. UKPERE, 2022. "The Implications of the Incursion of Cryptocurrency on the Effectiveness of Fiscal Policy," Review of Applied Socio-Economic Research, Pro Global Science Association, vol. 23(1), pages 134-150, June.
    • Handle: RePEc:rse:wpaper:v:23:y:2022:i:1:p:134-150
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cryptocurrency; Effectiveness; Fiscal Policy; Micro-economic models; Technology;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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