The optimal mix of taxes on money, consumption and income

Fiorella De Fiore, Pedro Teles*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


We determine the optimal combination of taxes on money, consumption and income in transactions technology models where exogenous government expenditures must be financed with distortionary taxes. We show that the optimal policy does not tax money, regardless of whether the government can use as alternative fiscal instruments an income tax, a consumption tax, or the two taxes jointly. These results are at odds with recent literature. We argue that the reason for this divergence is an inappropriate specification of the transactions technology adopted in the literature.

Original languageEnglish
Pages (from-to)871-887
Number of pages17
JournalJournal of Monetary Economics
Issue number4
Publication statusPublished - May 2003


  • Friedman rule
  • Inflation tax
  • Transactions technology


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