Advantages and Disadvantages of a Government Solely Depending on Money Newly Created on Banks

Abstract

Government spending is essential because it makes it possible to provide essential public goods and services and to build the necessary infrastructure. Taxes have historically been a major revenue source for governments. To fund government operations, taxes are charged on a person's or company's income, profits, or consumption. It would be a radical shift from the status quo if the government instead relied on money that was generated by the bank. In this alternate scenario, the central bank prints money to fund government spending instead of collecting massive amounts of tax revenue. By raising the supply of currency or reserves, the central bank expands the monetary base and injects fresh money into the economy. This study will analyze the pros and cons of having governments increasingly rely on bank-created money rather than tax revenue.