The Political Economy of Seigniorage
IMF Working Papers, September 1, 2005
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- The Political Economy of Seigniorage
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Bibliographic details
- Authors: Ari Aisen, Francisco José Veiga
- Published: September 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861945.001
Overview
- Title: The Political Economy of Seigniorage
- Authors: Ari Aisen, Francisco José Veiga
- Date: September 1, 2005
- Abstract summary:
- Seigniorage is a way governments finance deficits; the paper examines political, institutional, and economic determinants of reliance on seigniorage.
- Uses panel data on about 100 countries for the period 1960-1999.
- Main empirical result: greater political instability leads to higher seigniorage, with stronger effects in specific country contexts.
Methodology and Data
- Data:
- Panel data on about 100 countries.
- Time coverage: 1960-1999.
- Scope:
- Analysis focuses on political, institutional, and economic determinants of seigniorage.
- Outcome variable:
- Seigniorage as a source of government deficit financing.
Key Findings
- Political and institutional determinants:
- Greater political instability leads to higher seigniorage.
- The effect of political instability on seigniorage is especially pronounced in:
- developing countries,
- less democratic countries,
- socially polarized countries.
- Economic and institutional correlates:
- Higher seigniorage is associated with:
- high inflation,
- low access to domestic and external debt financing,
- higher turnover of central bank presidents.
- General conclusion:
- Political instability and weak institutional/economic settings increase reliance on seigniorage financing.
Policy Implications and Recommendations
- Institutional development:
- Need to develop institutions conducive to greater economic freedom as a means to lower reliance on seigniorage financing of public deficits.
- Central banking and governance:
- Reducing turnover of central bank presidents and strengthening central bank autonomy implied as relevant considerations given the association with seigniorage.