MMT and taxation

A political economy approach

Abstract

The MMT, in its general formulation, emphasizes that the reflux of taxes to the Treasury implies in the destruction of bank reserves and high-powered-money, not seeming to attribute to taxes a relevant role in government spending operations. This paper aims to contribute to the debate, arguing that taxes are a reflux in the monetary circuit initiated by public expenditure, for which they constitute final funding. Using the Sraffian Supermultiplier model, we aim to show the relevance of taxes to replenish the Treasury account, reducing the deficit and debt issuance, providing stability to the budget and government operations. Finally, we will approach taxation from the perspective of political economy, showing that the expansion of the supply of public goods and services is not dissociated from the rise of the tax burden, and that political-institutional contexts are decisive for the acceptance of increases or cuts in taxes.