Consumption tax and economic growth in an overlapping generations model with money holdings

Akihiko Kaneko, Daisuke Matsuzaki

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper examines the effect of a consumption tax on economic growth using an overlapping generations (OLG) model with money holdings. We show that the neutrality of the consumption tax does not hold in the money-in-the-utility-function model, because a change in consumption taxation induces the substitution of money holdings for consumption, and the money is the net wealth within the OLG structure. An increase in the consumption tax rate lowers (raises) the growth rate under a low (high) monetary expansion rate. On the other hand, in the cash-in-advance model and the money-in-the-production-function model, the neutrality of consumption taxation holds even within the OLG structure, because in these models there is no substitution of consumption and money holdings.

Original languageEnglish
Pages (from-to)155-175
Number of pages21
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume98
Issue number2
DOIs
Publication statusPublished - 2009 Oct 1
Externally publishedYes

Keywords

  • Consumption tax
  • Endogenous growth
  • Money
  • Overlapping generations

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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