Central bank independence, government political orientation and optimum government expenditure financing

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Abstract

This paper extends the government optimum expenditure financing model by incorporating the effects of both the government's political orientation and the central bank's independence. For the panel data of fourteen OECD countries for the period from 1974 to 1997, this paper shows first that countries with higher levels of central bank independence generate less seigniorage revenue, and second that governments which are controlled by left-wing parties create more seigniorage revenue to finance their spending.

Source Title

Review of International Economics and Business

Publisher

Wiley-Blackwell Publishing Ltd.

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Citation

Published Version (Please cite this version)

Language

English