Optimal Financing by Money and Taxes of Productive and Unproductive Government Spending

This paper contains an investigation of the effects of different means of financing government spending on economic growth, inflation, and welfare. In this setting, two different types of government spending are considered: productive expenditures that provide services to the private sector in its production activities, and unproductive expenditures that have no direct influence on the private economy. In turn, two different
forms of finance are considered: proportional income taxation; and money creation.