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Paper Information

Journal:   NAMEH-YE-MOFID   JUNE-JULY 2004 , Volume 10 , Number 2 (42 ECONOMICS); Page(s) 137 To 179.
 
Paper: 

INFLATIONARY FINANCE AND ITS OPTIMAL LEVEL: A THEORETICAL ANALYSIS

 
 
Author(s):  KOMIJANI AKBAR, ASKARI M.M.
 
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Abstract: 

The paper explains the importance and the incomes of inflationary finance, the maximum income, and the corresponding inflation rate, and the optimal level of application of this instrument. The empirical researches suggest that except for the hyper-inflationary cases, inflationary finance does not play a significant role in financing government expenditures.
The calculation of inflationary finance income and its maximum amount and the corresponding inflation rate has been a concern for economists. The results of investigations suggest that usually the seignior age increases with an increase in monetary base and inflation rate. However, in many studies, maximum income is achieved by a certain rate of inflation. When the inflation exceeds the certain rate inflationary tax will decrease. Incorporating the welfare costs of inflation in inflationary finance income calculation will yield the optimal inflationary finance. The study shows that, first, the social cost of seignior age income, and the tax should be equal. Secondly, a one percent increase in government income as a fraction of gross domestic product GDP will increase the inflation by 1.8 percent.

 
Keyword(s): INFLATIONARY TAX, INFLATIONARY FINANCE, SEIGNIORAGE, OPTIMAL SEIGNIORAGE
 
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