Economic Research Working Papers, No. Federal Reserve Bank of Dallas . In this paper, we explore a set of features in which a benevolent government will rely on seigniorage. We use a simple overlapping generations model with return-dominated money.
Money is valued because of a reserve requirement.
The government has to raise a fixed amount of revenue solely for the purposes of making transfers to the old. We restrict the amount of seigniorage collected to be nonnegative and require that the government's budget constraint be satisfied on a per-period basis. Computational experiments reveal, somewhat surprisingly, that the answer is yes. Indeed, in our setup, benevolent governments may require that at least part, if not all, of the revenue be raised via money creation. PDF format requires Adobe Acrobat for viewing. .