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1/Because you can& #39;t collect enough revenue to finance a modern government by issuing consolidated government liabilities - the liabilities of the central bank and the central government. This is just an extension of the notion of seignorage revenue, which is revenue from the... https://twitter.com/pmboothe/status/1263823015990738944">https://twitter.com/pmboothe/...
2/inflation tax. As with any tax, there& #39;s a tax rate, and a tax base. Increase the tax rate, and you generate more revenue, given the tax base, but the tax base falls with a higher tax rate, which will reduce revenues. So, there are two opposing effects, and there& #39;s some...
3/revenue-maximizing tax rate. The inflation rate is a tax rate - the central bank is taxing currency holdings, basically. So, there& #39;s some revenue-maximizing inflation tax. Generally, modern thinking is that this tax is inefficient. At 2% inflation, inflation tax revenue is...
4/very small, but we& #39;re fine with that. What about revenue from the issue of government debt? Certainly we can borrow in the short run to finance government spending, but there& #39;s a limit on how much revenue we can generate in the long run. You might think that with some...
5/constant level of real government debt to real GDP in the long run that we& #39;re not getting any revenue, as we have to pay the interest on the debt every year. But if the real rate of interest is low enough (and it& #39;s quite low now) then we can in fact sustain postive revenue...
6/from rolling over the government debt indefinitely. But the same logic applies as in the inflation tax case. The low real rate of interest reflects taxation at work. There& #39;s a distortion. And there& #39;s a limit on how much revenue collection we can sustain indefinitely from...
7/debt issue. Basically, the revenue we can get indefinitely isn& #39;t much. And we& #39;ve got a distortions to deal with. There& #39;s a distortion from the inflation tax, there& #39;s a distortion from the low real interest rate - basically an economy with too little consolidated government...
8/liabilities. So, sorry, as usual in economics there& #39;s no free lunch.
