Currency Substitution and Government Revenue from Inflation
Keywords:
currency substitution, inflation tax, government revenue, open economy, money demand, developing countriesAbstract
The purpose of this paper is to show that in the case of an open economy the calculations of revenue-maximing rates of inflation have been made using a restrictive model that assumes that domestic residents can only substitute between domestic money and goods (and real assets). The paper demonstrates that once the effects of currency substitution, so common in developing countries, are taken into account, the inflation rate that maximizes the proceeds of the inflation tax can be quite lower than would be the case when currency substitution is ignored.Downloads
References
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Copyright (c) 1986 Mohsin S. Khan, C. Luis Ramírez-Rojas
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