Money, Neutrality of Consumption Taxes, and Growth in Intertemporal Optimizing Models

This paper considers the effects of a proportional consumption tax with the same rate over time on the real growth path of a monetary economy. The analysis uses a variety of stylized monetary growth models in which individual\u27s consumption-saving decision is based on intertemporal utility maximization, such as the money-in-utility, transaction-costs, and cash-in-advance models. The first key result is that the neutrality of the consumption tax may or may not be true, depending on the nature or the role of money in the respective models. The second is that the consumption tax is generally superior to the inflation tax (i.e., the monetary growth rate) in terms of steady state welfare when raising a given amount of revenue