Fiscal Deficits and Inflation, Issues 2003-2065

Front Cover
International Monetary Fund, Apr 1, 2003 - Fiscal policy - 32 pages
0 Reviews
Macroeconomic theory postulates that fiscal deficits cause inflation. Yet empirical research has had limited success in uncovering this relationship. This paper reexamines the issue in light of broader data and a new modeling approach that incorporates two key features of the theory. Unlike previous studies, we model inflation as nonlinearly related to fiscal deficits through the inflation tax base and estimate this relationship as intrinsically dynamic, using panel techniques that explicitly distinguish between short- and long-run effects of fiscal deficits. Results spanning 107 countries over 1960-2001 show a strong positive association between deficits and inflation among high-inflation and developing country groups, but not among low-inflation advanced economies.

From inside the book

What people are saying - Write a review

We haven't found any reviews in the usual places.

Other editions - View all

Common terms and phrases

Bibliographic information