Abstract:
Using a monetary pure-exchange overlapping generations model, where the probability of survival of the young agents depends upon share of government expenditure on health, education and infrastructure, we analyze the welfare-maximizing policy mix between explicit and implicit
taxation. We show that increases in the survival probability lead to an increase in the reliance on
seigniorage as a welfare maximizing outcome. However, for our results to hold, the seigniorage
tax base must be large enough for the benevolent planner to use the inflation tax.