OPTIMAL TAXATION OF MONEY BALANCES (QUANTITY, INFLATION, FINANCE, DEFICIT, POLICY)

This dissertation develops a new approach to the optimal taxation of money balances in a second best world. Even if there are not explicit taxes on money in the real world, inflation and required reserves represent implicit taxes on money. One of the effects of these taxes is to create a wedge between the cost of creating money balances and the cost of holding them, which in general will generate economic distortions. The problem addressed in this dissertation is to compare the relative efficiency of implicit taxes on money versus taxes on real commodities as alternative means to raise a certain revenue by the government. The key innovation in the way that this problem is approached is in introducing money in a very general way as a medium of exchange instead of an argument of the utility function, which has been so far the common approach in the literature.;When money is introduced as a medium of exchange, taxes on money are welfare dominated by taxes on real commodities under fairly general conditions. Nevertheless, these conditions are more stringent than the ones needed for the general rule not to tax intermediate goods, because households may be constrained to perform their own exchange activity, at least up to a certain point. It is also shown that if intermediary firms perform the exchange activity, then the taxation results on intermediate goods are fully applicable to money. Finally, if taxes on commodities can be non-linear and different for each household, then a zero tax on money is optimal with just regularity conditions.;In conclusion, the fact that money is a medium of exchange is crucial in the relative efficiency of taxing it, and under general conditions leads to an optimal tax of zero.;Two different complementary methodologies are used. One of them relies on general topological properties on technologies and preferences to derive global conclusions. The other uses differential calculus and obtains propositions in term of local values of the demand elasticities.