37 votes

Could eliminating all taxes and only creating new money theoretically work?

It would not work. Historically speaking, governments that try to fund their operations primarily via the printing press experience not just inflation but hyper-inflation. Why? Well, one explanation ...
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20 votes
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What benefits do governments receive from not eliminating debt?

Most of the same considerations apply to countries as apply to businesses and people, plus a couple of extra cons Pros of Being Debt Free No interest payments Not beholden to someone else (financial ...
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  • 1,428
18 votes

Could eliminating all taxes and only creating new money theoretically work?

tl;dr this would not work in either closed or open economy unless your proposal would include very large cuts to current social and welfare spending as only arguably small part of those could be ...
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  • 42.1k
10 votes

What benefits do governments receive from not eliminating debt?

There is an interesting report that circulated during the Clinton administration, when we predicted we'd pay off all the debt, that I think answers your question. (here's a public radio article about ...
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8 votes
Accepted

What's quantitative easing?

Before the edit, you wrote "qualitative easing", but I think you refer to quantitative easing. I'll discuss both. Quantitative Easing Quantitative easing corresponds to the central bank (CB) ...
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7 votes

What are taxes for since law forbids printing of money?

"Why I don't hear nobody speaking about such idea?" Because historical experience says it won't work. By printing money instead of collecting taxes, what increases is the nominal disposable income....
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7 votes
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Are state owned enterprises really inefficient?

Because of the large number of roughly comparably sized private and public firms, the petroleum industry provides a laboratory for exploring differences between private and state owned enterprises in ...
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  • 15.8k
7 votes

Are state owned enterprises really inefficient?

SOE's don't have to perform worse that private enterprises, but they often do. The reasons are manifold: Some SOE's are not set up for profit motive, but rather to seed strategic industries for a ...
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  • 558
6 votes

What benefits do governments receive from not eliminating debt?

Suppose your country holds debt equal to thirty percent of GDP and that the government is obliged to pay interest of five percent per year on that debt. This implies that each year the cost of ...
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  • 16.6k
6 votes
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How does the russian interest rate raise will defends the Ruble from devaluation?

An interest rate is the return that a lender earns on money lent to someone else. If the interest rate is higher then it makes lending money more attractive because the return is higher. In ...
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  • 16.6k
6 votes

Why are "transfer payments" not part of GDP?

Transfer payments aren't included in GDP to prevent double-counting. The reason the author's question is troubling you is because the answer externalizes everything that happens after the payment ...
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  • 186
6 votes

Breaking Up The Big Banks

This is an interesting question. The banks themselves will not naturally divide themselves. There are great returns to scale in banking, and risk can be greatly diversified by being massive and ...
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5 votes

What are taxes for since law forbids printing of money?

The current answers correctly point out that financing the government via the printing press would generate inflation. Since inflation is bad, this would be a bad policy. However, these answers miss ...
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  • 1,822
5 votes

Why switch from Gold to Fiat

When recession strikes, it's prone to the currency equivalent of "bank runs" where everyone attempts to trade in their paper money for gold at once, causing a drastic reduction in the money supply, ...
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5 votes

Welfare analysis for a military draft

An obligatory draft is a tax collected in kind - productive time. Instead of producing in the private sector, citizens of the economy offer their services to the army. Now, we should acknowledge ...
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5 votes

Could eliminating all taxes and only creating new money theoretically work?

The Modern Monetary Theory (MMT) literature discusses the historical experience of issuing “new” currencies. (Typically, the introduction of money in colonies that did not have a simple monetary ...
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4 votes

Are all country government budgets made up of taxes?

The answer to your first question is no. For example in Saudi Arabia only foreign residents are taxed. The state can afford to do this because it owns the oil fields and receives a lot revenue from ...
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4 votes

Why are "transfer payments" not part of GDP?

The question: How much would GDP change if during a recession the government raises unemployment benefits by $100 million? can be understood in more than one way. There is the pure accounting ...
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  • 6,813
4 votes

Why doesn't government work more like a company when it comes to taxes?

Getting the facts straight First before addressing the question, lets get the facts straight as arguing based on incorrect premises is not good and in this case this is also relevant to the answer. ...
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  • 42.1k
4 votes

Could eliminating all taxes and only creating new money theoretically work?

Wanted to note, with a digital currency this is exactly equivalent to replacing all forms of taxes except a single (high) Wealth Tax [1] that only applies to currency, rather than net worth. Under ...
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  • 141
4 votes

Externality and Output

In principle in both positive and negative externality scenario government could just set price to the socially efficient price. However, outside of static textbook example this is non-starter. The ...
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  • 42.1k
4 votes

Externality and Output

For a government to address a positive externality by setting the price of a good to its socially efficient price would raise several difficulties. The diagram below relates to the case of a good ...
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  • 6,813
3 votes
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How does the ban on surge pricing affect the companies, customers and the economy?

It depends. If customers are currently making informed decisions when they book a surge-priced car, then banning surge pricing punishes customers, drivers, intermediaries, and the wider economy. It ...
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  • 8,002
3 votes
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Can government and people spend money foolishly be a main cause of inflation?

No, it cannot cause inflation. Inflation is a general rise in the price level, a decrease in the purchasing power of money. While military spending, for example, could cause inflation if paid for ...
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3 votes

Why do national governments not rent money from central banks directly?

Note: This answer was posted 4 months before the OP clarified what it really wanted to ask (see comments below the answer). I will accept @Ubiquitous view of the question, which in summary is: Why ...
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3 votes

What benefits do governments receive from not eliminating debt?

I am quite surprised that none of the answers above have mentioned the classic Barro article "Are Government Bonds Net Wealth" The way I understand it is that given that the utility function is ...
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  • 1,631
3 votes

How government borrowing from central bank increases money supply in economy?

Central banks can create money 'out of nothing'. So for starters there isn't 'less amount' of money left with the central bank. The amount of money at the central bank is 'infinite'. So it's not ...
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  • 338
3 votes

Is the government a producer, a consumer, or both?

The government is a producer of goods/services that are then usually not subject to market transactions. Some goods/services that the government produce can be said to increase directly the utility ...
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3 votes

How can a country ensure its national currency is used by its citizens?

First of all, please check the properties of money and keep them in mind. Indeed money is a convention, but nobody forces you to use it. For example, prisoners use ciggarettes as a medium of exchange. ...
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3 votes
Accepted

How much does a public sector pay rise actually cost the UK government?

Unison (2014) - Net cost The Public sector trade union did an analysis of lifting the cap in 2014. The report is here. Unlike the IFS analysis presented above, Unison estimates the net cost of an ...
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