Is currency seigniorage exogenous for inflation tax in Turkey?
This paper discusses the implications of the validity of the conditioning hypothesis for the maintained money demand equation for an inflation tax analysis. We also test the validity of the quantity-theoretical inflation tax model for the post-1980 quarterly Turkish data by using Johansen cointegration techniques. The results suggest that the tax rate (inflation) is weakly exogenous for the parameters of the long-run money demand (tax base) equation. This result, consistent with a Keynesian endogenous seigniorage-exogenous inflation tax rate theory prior, does not support the hypothesis that the Turkish inflation can be explained by the conventional inflation tax revenue-maximizing motive alone.