Optimal Seigniorage, the Gold Standard, and Central Bank Financing

Abstract

This paper extends the theory of optimal seigniorage to allow for money production costs. An important implication is tha t high money production costs, along with a requirement that the monet ary branch of government self-finance its operation, severs the connecti on between the tax rate on output and the tax rate on money. Using U.S. data, the authors find that tax rates on output and money move together only during periods when the government controls both tax rates and there is a close correspondence between revenue produced b y the monetary authority and revenue transferred to the treasury. Copyright 1993 by Ohio State University Press.

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