DP726 A Simple Model of Money and Taxes and an Illustration with Brazilian Data

Author(s): Alberto Giovannini, Bart Turtelboom
Publication Date: October 1992
Keyword(s): Cash-in-advance Constraint, Inflation, Money Demand, Taxes
JEL(s): E41, H30
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=726

We explore the properties of velocity in a model where agents are required by law to use money to pay taxes, but not for any other private purchases. The model is applied to Brazil between 1975 and 1990. We show that the model mimics consumption velocity very closely during the high-inflation years.