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Determinants of Inflationary Finance: A Theoretical Analysis
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Mohammad Mehdi Askari *   |
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Abstract: (17227 Views) |
| This paper analyzes some determinant Factors of inflationary finance.
Transitory Government expenditure is considered as one of these factors.
Vegh (1989) and Click (1998) show that (i) If the collection cost of taxes
is an increasing function of tax revenue, inflation tax will be an
increasing function of the Government expenditure. (ii) There is a
positive relationship between seigniorage and the standard error of
transitory Government expenditure and a negative relationship with
credit worthiness of the country.
Economic investigations describe an inverse relationship between
the Central Bank independence and seigniorage. Another factor that
affects the inflationary finance is the monetary settings of an economy.
The existence of positive equivalence between monetary policy standard
and inflationary finance and convex relationship between seigniorage
and monetary settings for countries with complex financial systems, are
the results of these studies.
In addition to economic components of inflationary finance,
political factors may be influential. The implications of some empirical
works imply that the more is the instability of political systems, the more
would be the reliance on seigniorage |
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| Keywords: Inflation Tax, Inflationary Finance Seigniorage, Central Bank, Independence |
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Full-Text [PDF 62 kb]
(1732 Downloads)
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Type of Study: Research |
Subject:
General
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