We calculate the effects of an increase in government spending under two financing alternatives: labor income taxes or inflation. A standard cash-in-advance model implies that it is optimal to finance the increase in spending with inflation rather than with taxes. We allow agents to choose the moment in which they adjust their portfolio. This change reverses the conclusion. The welfare cost of financing the government with inflation becomes higher. The robustness of this result is studied by considering government spending in the form of transfers or consumption expenditures and alternative definitions of seigniorage.