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

Date
2002
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Source Title
Review of International Economics and Business
Print ISSN
0965-7576
Electronic ISSN
1467-9396
Publisher
Wiley-Blackwell Publishing Ltd.
Volume
4
Issue
Pages
433 - 461
Language
English
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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.

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