Inflationary bias and state owned financial institutions
AbstractThis article explains why the existence of state owned financial institutions makes it moredifficult for a country to balance its budget. We show that states can use their financiaIinstitutions to transfer their deficits to the federal govemment. As a result, there is a biastowards Iarge deficits and high inflation rates. Our model also predicts that state ownedfinanciaI institutions should underperform the market, mainly because they concentrate theirportfolios on non-performing loans to their own shareholders, that is, the states. Brazil andArgentina are two countries with a history of high inflation that confirm our predictions .
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Bibliographic InfoPaper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 242.
Date of creation: Jun 1994
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- Novaes, Walter & Werlang, Sergio, 1995. "Inflationary bias and state-owned financial institutions," Journal of Development Economics, Elsevier, Elsevier, vol. 47(1), pages 135-154, June.
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