Fiscal Revenue and Inflationary Finance
IMF Working Papers, May 1, 1990
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- Fiscal Revenue and Inflationary Finance
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Bibliographic details
- Authors: Nurun N. Choudhry
- Published: May 1, 1990
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451972184.001
Summary
- This paper analyzes the erosion of fiscal revenue by inflation resulting from the issuance of money.
- The empirical evidence for a number of developing countries supports the hypothesis that an increase in inflation will result in a fall in real fiscal revenue because of collection lags.
- A fall in real fiscal revenue can possibly widen the fiscal deficit.
- Attempts to generate resources to finance government expenditures via the inflation tax will involve a loss in other revenues, making this form of taxation even less desirable.
Empirical findings
- Empirical evidence covers a number of developing countries.
- Key mechanism identified: collection lags cause inflation to reduce real fiscal revenue.
- Consequence observed: increased inflation potentially widens the fiscal deficit due to revenue erosion.
Policy implications and recommendations
- Financing government expenditures through the inflation tax is counterproductive because:
- It generates revenue via issuance of money but erodes other fiscal revenues.
- The net effect may worsen fiscal balances rather than improve them.
- Policymakers should consider the loss in other revenues when evaluating inflationary finance as a resource generation strategy.
Key statistics and publication metadata
- Author: Nurun N. Choudhry
- Date: May 1, 1990
- Pages: 32
- Volume: 1990
- Issue: 048
- Series: Working Paper No. 1990/048
- Stock No: WPIEA0481990
- DOI: https://doi.org/10.5089/9781451972184.001
- ISBN: 9781451972184
- ISSN: 1018-5941
Subject classification and keywords
- Subject: Expenditure, Government debt management, Inflation, Monetary base, Money, National accounts, Personal income, Prices, Public financial management (PFM)
- Keywords: Africa, Asia and Pacific, fiscal revenue, Government debt management, Inflation, inflation revenue, lag coefficient, Middle East, Monetary base, Personal income, rate of inflation, revenue, revenue-maximizing inflation rate, welfare cost ratio, Western Hemisphere, WP
Disclaimer (as provided in source)
- 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.
IMF Working Paper "Fiscal Revenue and Inflationary Finance", Nurun N. Choudhry, May 1, 1990.