Government Expenditure Financing and Economic Growth: the Role of Currency Substitution

• Main Authors: HSU, WEN-CHUNG, 許文忠
• Other Authors: Shu-Hua Chen
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/94865392949991771204

碩士 === 國立臺北大學 === 經濟學系 === 101 === This thesis studies the relation between government expenditure financing and domestic economy’s long-run output growth and inflation within a small open economy model with currency substitution. In contrast to Holman and Neanidis’ (2006, JEDC) assumption that domestic agents are allowed to participate in international capital markets, we consider the case where domestic agents do not have access to international capital markets. In addition, we make the first attempt in the literature to consider consumption tax financing and import tariff financing. It turns out that we reach reversed results as compared to what are obtained by Holman and Neanidis, therefore pointing out the important role of international capital market participation on the issue of public spending financing. In particular, we find that when real balances are required only for consumption purchases, consumption tax financing, import tariff financing, and money financing are mutually equivalent and are optimal from the perspectives of maximizing output growth. From the perspectives of minimizing long-run inflation, income tax is the optimal financing mode and consumption tax financing and import tariff financing are the worst. Currency substitution does not play a role in this case. If both consumption and gross investment are liquidity constrained, then import tariff financing only is optimal from the perspectives of maximizing output growth and consumption tax financing is the worst. From the perspectives of minimizing long-run inflation, consumption tax financing is the optimal financing mode and import tariff financing is the worst. An increase in the share of foreign currency in circulating or in the substutability between domestic and foreign currencies reinforces the effects.