Abstract
This paper compares the relative efficiency of the implicit taxation of money and the explicit taxation of real commodities to finance a given amount of government expenditures. In the model used, money has the property of reducing transactions costs. A sufficient condition for a tax on money to be welfare-dominated by a linear tax on consumption expenditures is characterized in terms of a few parameters, very familiar in macroeconomics. This characterization is especially useful in the cases of heterogeneous consumers and increasing returns to scale in transactions, since then the optimal tax on money may in principle be positive.
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