The non-monotonic relationship between seigniorage and inequality
Journal or Book Title
Canadian Journal of Economics
First Page or Article ID Number
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.
Bhattacharya, Joydeep; Bunzel, Helle; and Haslag, Joseph H., "The non-monotonic relationship between seigniorage and inequality" (2005). Economics Publications. 112.