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Does inflation targeting improve fiscal discipline?

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  • Minea, Alexandru
  • Tapsoba, René

Abstract

We explore the performances of inflation targeting (IT) adoption in terms of fiscal discipline (FD), while most existing studies focus exclusively on the role of FD as a precondition for IT adoption. Using a sample of developing and developed countries, we show that IT adoption exerts a positive and significant effect on FD, a result robust to a wide variety of alternative specifications. In addition, this effect is statistically significant only in developing countries, a result that may fuel the current debate regarding the relevance of IT adoption in general, and particularly for developing countries.

Suggested Citation

  • Minea, Alexandru & Tapsoba, René, 2014. "Does inflation targeting improve fiscal discipline?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 185-203.
    • Handle: RePEc:eee:jimfin:v:40:y:2014:i:c:p:185-203
    DOI: 10.1016/j.jimonfin.2013.10.002
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    More about this item

    Keywords

    Inflation targeting; Fiscal discipline; Propensity-score matching;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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