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Unformatted text preview: The Inflation Tax INFLATION TAX REVENUES INFLATION RATE A B C It is sometimes the case that a government is unable to raise revenues from taxes. The accounting and enforcement systems necessary for tax compliance either do not exist or are very inadequate. An alternative way of obtaining revenue for the Government is to borrow. However, if the Government is running huge deficits that are unlikely to be paid back from tax revenues, intelligent investors will not loan the Government money by buying their bonds. This situation leaves only one real alternative source of revenue. The Government can print money (seniorage). Governments typically have a monopoly on issuing the national currency. Money is vital to modern economies because otherwise some type of barter system would have to be used. In order to pay their bills, Governments with no other alternatives print money. They do not usually just print money in the way that counterfeiters would do instead they sell bonds to their Central Bank. counterfeiters would do instead they sell bonds to their Central Bank....
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This note was uploaded on 04/04/2012 for the course ECON 200H taught by Professor Staff during the Winter '11 term at Ohio State.
- Winter '11