{
  "title": "Fiscal Deficits and Inflation: A New Look at the Emerging Market Evidence",
  "publication": "IMF Working Papers, May 1, 2001",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188",
  "overlayPath": "/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/index.md",
  "summary": "Empirical studies have had little success in finding a statistically significant relationship between fiscal deficits and inflation in broad cross-country panels. This paper provides new econometric estimates for a panel of 23 emerging market countries during 1970-2000.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Empirical studies have had little success in finding a statistically significant relationship between fiscal deficits and inflation in broad cross-country panels.\n- This paper provides new econometric estimates for a panel of 23 emerging market countries during 1970-2000.\n- The analysis allows for a rich dynamic specification and focuses on the long-run relationship between fiscal deficits and inflation while controlling for differences in the inflation tax base.\n- Key quantitative result: a 1 percentage point reduction in the ratio of fiscal deficit to GDP typically lowers long-run inflation by 1½ to 6 percentage points, depending on the size of the inflation tax base."
    },
    {
      "heading": "Methodology and Scope",
      "content": "- Sample: panel of 23 emerging market countries.\n- Sample period: 1970-2000.\n- Econometric approach: rich dynamic specification emphasizing the long-run relationship between fiscal deficits and inflation.\n- Controls: differences in the inflation tax base."
    },
    {
      "heading": "Main Findings",
      "content": "- Broad cross-country panels historically showed little statistically significant deficit-inflation relationship; this study identifies a robust long-run link in the specified emerging market panel.\n- Magnitude of effect:\n  - A 1 percentage point reduction in the fiscal deficit-to-GDP ratio → long-run inflation reduction of 1½ to 6 percentage points, conditional on the inflation tax base."
    },
    {
      "heading": "Policy Implications",
      "content": "- Fiscal consolidation that reduces the deficit-to-GDP ratio can have substantial long-run disinflationary effects in emerging market economies.\n- The effectiveness of deficit reductions in lowering inflation varies with the size of the inflation tax base; policymakers should account for country-specific inflation tax base characteristics when designing fiscal adjustments.\n\n---\n\n Content in this bundle\n\n- Fiscal Deficits and Inflation:  A New Look at the Emerging Market Evidence - WP/01/74\n  - Fiscal Deficits and Inflation:  A New Look at the Emerging Market Evidence - WP/01/74 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Fiscal Deficits and Inflation:  A New Look at the Emerging Market Evidence - WP/01/74 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/bundle-manifest.json)",
    "Authors: Marco Terrones, Luis Catão",
    "Published: May 1, 2001",
    "Series: IMF Working Papers",
    "Empirical studies have had little success in finding a statistically significant relationship between fiscal deficits and inflation in broad cross-country panels.",
    "This paper provides new econometric estimates for a panel of 23 emerging market countries during 1970-2000.",
    "The analysis allows for a rich dynamic specification and focuses on the long-run relationship between fiscal deficits and inflation while controlling for differences in the inflation tax base.",
    "Key quantitative result: a 1 percentage point reduction in the ratio of fiscal deficit to GDP typically lowers long-run inflation by 1½ to 6 percentage points, depending on the size of the inflation tax base.",
    "Sample: panel of 23 emerging market countries.",
    "Sample period: 1970-2000.",
    "Econometric approach: rich dynamic specification emphasizing the long-run relationship between fiscal deficits and inflation.",
    "Controls: differences in the inflation tax base.",
    "Broad cross-country panels historically showed little statistically significant deficit-inflation relationship; this study identifies a robust long-run link in the specified emerging market panel.",
    "Magnitude of effect:",
    "Fiscal consolidation that reduces the deficit-to-GDP ratio can have substantial long-run disinflationary effects in emerging market economies.",
    "The effectiveness of deficit reductions in lowering inflation varies with the size of the inflation tax base; policymakers should account for country-specific inflation tax base characteristics when designing fiscal adjustments.",
    "**Fiscal Deficits and Inflation:  A New Look at the Emerging Market Evidence - WP/01/74**"
  ],
  "related": [
    {
      "title": "Fiscal Deficits and Inflation:  A New Look at the Emerging Market Evidence - WP/01/74",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2001/_wp0174.pdf",
      "summary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2001/_wp0174.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2001/_wp0174.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/index.md",
    "json": "/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/index.json",
    "bundleManifest": "/en/publications/wp/issues/2016/12/30/fiscal-deficits-and-inflation-a-new-look-at-the-emerging-market-evidence-15188/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-17T06:20:52.101Z"
}