Title

The non-monotonic relationship between seigniorage and inequality

Campus Units

Economics

Document Type

Article

Publication Date

5-2005

Journal or Book Title

Canadian Journal of Economics

Volume

38

Issue

2

First Page or Article ID Number

500

Last Page

519

DOI

10.1111/j.0008-4085.2005.00290.x

Abstract

We present an analysis of how political factors may come into play in the equilibrium determination of inflation. We employ a standard overlapping generations model with heterogenous young-age endowments, and a government that funds an exogenous spending via a combination of non-distortionary income taxes and the inflation tax. Agents have access to two stores of value: fiat money and an inflation-shielded, yet costly, asset. The model predicts that the relationship between elected reliance on the inflation tax (for revenue) and income inequality may be non-monotonic. We find robust empirical backing for this hypothesis from a cross-section of countries.

JEL Classification

E5, P16

Comments

This is a working paper of an article from The Canadian Journal of Economics, Vol. 38 no. 2 (May 2005): 500-519, doi:10.1111/j.0008-4085.2005.00290.x.