## Fiscal Balance During Inflation, Disinflation, and Immigration: Policy Lessons

_IMF Working Papers, April 1, 1996_

## Source details

**Canonical URL:** [Fiscal Balance During Inflation, Disinflation, and Immigration: Policy Lessons](https://www.imf.org/en/publications/wp/issues/2016/12/30/fiscal-balance-during-inflation-disinflation-and-immigration-policy-lessons-1996)

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## Bibliographic details
- Authors: Assaf Razin, Efraim Sadka
- Published: April 1, 1996
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451979312.001

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### Summary
- The paper provides an overview of the role of fiscal imbalances and the ensuing public debt in explaining major episodes in Israel’s recent economic developments.
- The authors present conclusions from Israeli budgetary developments that may have broader applicability.

### Major findings
- Deficits lead to inflation.
- Stopping inflation requires elimination of deficits.
- A major effect of inflation is a large shift of the tax burden from capital to labor.
- Shocks to labor supply, such as massive labor inflow through immigration, can be absorbed without worsening government finances when the labor and the housing markets are sufficiently flexible.

### Policy implications and lessons
- Fiscal consolidation (eliminating deficits) is central to successful disinflation.
- Tax incidence shifts during high inflation—policy should account for redistribution of tax burden from capital to labor.
- Labor- and housing-market flexibility can mitigate fiscal pressures from large immigration inflows, implying structural reforms in these markets can preserve fiscal stability.

### Subjects and keywords (as stated by the authors)
- Subjects: Government debt management, Income, Inflation, National accounts, Prices, Public debt, Public financial management (PFM), Tax incidence, Tax policy
- Keywords: deficit, disinflation, disinflation program, exchange rate, Government debt management, government savings, high-inflation period, Income, Inflation, inflation expectation, inflation path, inflation process, inflation stabilization, nominal capital, nominal rate, real rate of interest, stopping inflation, Tax incidence, tax liability, WP

*Source: Fiscal Balance During Inflation, Disinflation, and Immigration: Policy Lessons, By Assaf Razin and Efraim Sadka, IMF Working Papers 1996, 033.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/fiscal-balance-during-inflation-disinflation-and-immigration-policy-lessons-1996_