Fiscal Revenue, Inflationary Finance and Growth

March 1, 1992

Preview Citation

Format: Chicago

Nurun N. Choudhry Fiscal Revenue, Inflationary Finance and Growth, (USA: International Monetary Fund, 1992) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the optimal rate of monetary expansion when government resorts to inflationary finance to generate additional investment for enhancing growth. If there are lags in tax collection, an increase in inflation erodes real fiscal revenue, thereby worsening the current balance while reducing government investment. This impedes capital accumulation as well as increases the welfare cost of inflation. As such, the optimal rate of monetary expansion, equilibrium capital-labor ratio and output are lower while the marginal cost of inflationary finance is higher than they would be without collection lags. Simulations are performed to highlight empirical implications.

Subject: Capital productivity, Consumption, Government debt management, Inflation, Monetary expansion, Monetary policy, National accounts, Prices, Production, Public financial management (PFM)

Keywords: Capital formation, Capital productivity, Consumption, Effects of inflation, Government debt management, Inflation, Inflation expectation, Inflation rate, Inflation revenue, Monetary expansion, Revenue ratio, Revenue-eroding effect, Shadow price, Shadow price of capital, Welfare cost of inflation, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/023
Stock No:

WPIEA0231992
ISBN:

9781451921069
ISSN:

1018-5941

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