Government Bond Seigniorage

Recent studies have indicated that government bonds are an imperfect substitute for money in providing transaction services. Based on these studies, this article develops a theoretical framework showing that, as with money seigniorage, the government can gain an interest benefit from issuing government bonds. The article terms this interest benefit as ‘government bond seigniorage’. Further, the article estimates government bond seigniorage in comparison with money seigniorage for five countries (Australia, Canada, France, Italy and the United States) during the period 1959– 2001. It is found that government bond seigniorage accounts for a larger percentage of Gross Domestic Product than money seigniorage, but also experiences greater fluctuations for all sample countries.