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Monetary Capacity

Author

Listed:
  • Adam Brzezinski
  • Roberto Bonfatti
  • K. KıvançKaraman
  • Nuno Palma

Abstract

Monetary capacity refers to a state’s capacity to circulate money that is accepted by the public, while fiscal capacity refers to its capacity to tax. We argue that monetary and fiscal capacity, and by extension, markets and states are complements. The long-run European evidence since antiquity shows money stocks and tax revenues moving in close synch. History also offers a natural experiment to estimate the causal effect of monetary capacity on fiscal capacity. The discovery of silver in the New World increased money stocks followed by tax revenues, a finding that is robust to controlling for economic growth.

Suggested Citation

  • Adam Brzezinski & Roberto Bonfatti & K. KıvançKaraman & Nuno Palma, 2020. "Monetary Capacity," Economics Series Working Papers 926, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:926
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    References listed on IDEAS

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    Cited by:

    1. Karaman, K. Kıvanç & Pamuk, Şevket & Yıldırım-Karaman, Seçil, 2020. "Money and monetary stability in Europe, 1300–1914," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 279-300.
    2. Chen, Yao & Palma, Nuno & Ward, Felix, 2021. "Reconstruction of the Spanish money supply, 1492–1810," Explorations in Economic History, Elsevier, vol. 81(C).
    3. Nuno Palma, 2019. "American Precious Metals and their Consequences for Early Modern Europe," Working Papers 0174, European Historical Economics Society (EHES).

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    More about this item

    Keywords

    monetary capacity; fiscal capacity; monetization; inflation; taxation; quantity theory of money; monetary non-neutrality;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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