The optimal taxation of fiat money in search equilibrium.

This paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money. Since buyers with money must invest effort or search intensity to contact sellers with goods, a natural trading externality arises. Given a sufficiently productive economy, search efforts will be too low relative to social efficiency. This provides a welfare improving role for policies which tax money balances. The nature of this role is explored and its implications for optimal monetary policy discussed.

Main Author: Li, Victor.
Format: Villanova Faculty Authorship
Language: English
Published: 1995
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