Fiscal Revenue, Inflationary Finance and Growth

Author/Editor:

Nurun N. Choudhry

Publication Date:

March 1, 1992

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.

Series:

Working Paper No. 92/23

Subject:

English

Publication Date:

March 1, 1992

ISBN/ISSN:

9781451921069/1018-5941

Stock No:

WPIEA0231992

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

30

Please address any questions about this title to publications@imf.org