Optimal Seigniorage in Developing Countries: An Empirical Investigation

This paper investigates the predictions of the theory of optimal seigniorage in developing countries over the period 1970-1999. The tax smoothing hypothesis, tested on forty selected developing countries, is rejected. However, the hypothesis that economies with high levels of expenditure and taxation also have high levels of inflation tax, tested on the forty selected developing countries and on a larger sample (up to 112 developing countries) can not be rejected.