The timing of tax collections and the structure of "irrelevance" theorems in a cash-in-advance model

Thomas J. Sargent, Bruce D. Smith

    Research output: Contribution to journalArticle

    Abstract

    A standard timing protocol in a cash-in-advance model allows the government to elude the inflation tax. That matters. Altering the timing of tax collections to make the government hold cash overnight disables some classical propositions but enables others. The altered timing protocol loses a Ricardian proposition and also the proposition that open market operations, accompanied by tax adjustments needed to finance the change in interest on bonds due the public, are equivalent to pure units changes. The altered timing enables a Modigliani-Miller equivalence proposition that does not otherwise prevail.

    Original languageEnglish (US)
    Pages (from-to)585-603
    Number of pages19
    JournalMacroeconomic Dynamics
    Volume14
    Issue number4
    DOIs
    StatePublished - Sep 2010

    Keywords

    • Modigliani-Miller Theorem
    • Quantity Theory of Money
    • Ricardian Equivalence

    ASJC Scopus subject areas

    • Economics and Econometrics

    Fingerprint Dive into the research topics of 'The timing of tax collections and the structure of "irrelevance" theorems in a cash-in-advance model'. Together they form a unique fingerprint.

  • Cite this