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The Political Economy of Seigniorage

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  • Ari Aisen
  • Francisco José Veiga

Abstract

While most economists agree that seigniorage is one way governments finance deficits, there is less agreement about the political, institutional, and economic reasons for relying on it. This paper investigates the main determinants of seigniorage using panel data on about 100 countries, for the period 1960-1999. Estimates show that greater political instability leads to higher seigniorage, especially in developing, less democratic, and socially polarized countries, with high inflation, low access to domestic and external debt financing and with higher turnover of central bank presidents. One important policy implication of this study is the need to develop institutions conducive to greater economic freedom as a means to lower the reliance on seigniorage financing of public deficits.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/175.

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Length: 26
Date of creation: 01 Sep 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/175

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Keywords: Currency issuance; Economic models; political instability; political rights; freedom house; political parties; political science; ethnic diversity; polarization; political institutions; external shocks; social polarization; political influence; higher growth; democratic regimes;

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References

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  1. Woo, Jaejoon, 2005. "Social polarization, fiscal instability and growth," European Economic Review, Elsevier, Elsevier, vol. 49(6), pages 1451-1477, August.
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  9. Joydeep Bhattacharya & Helle Bunzel & Joseph Haslag, 2005. "The non-monotonic relationship between seigniorage and inequality," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(2), pages 500-519, May.
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Citations

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Cited by:
  1. Carsten Hefeker, 2009. "Taxation, Corruption and the Exchange Rate Regime," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200911, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Francisco José Veiga & Ari Aisen, 2006. "Political Instability and Inflation Volatility," IMF Working Papers 06/212, International Monetary Fund.
  3. Ari Aisen & Francisco José Veiga, 2011. "How Does Political Instability Affect Economic Growth?," IMF Working Papers 11/12, International Monetary Fund.
  4. Christopher Bowdler & Adeel Malik, 2005. "Openness and inflation volatility: Cross-country evidence," Economics Papers 2005-W14, Economics Group, Nuffield College, University of Oxford.
  5. Alexandru MINEA & Pascale COMBES MOTEL & Jean-Louis COMBES & Patrick VILLIEU, 2013. "Deforestation and Seigniorage in Developing Countries: A Tradeoff?," Working Papers 201322, CERDI.
  6. Miguel Rueda, 2008. "Credibilidad en la política monetaria: Papel de políticas en la estabilidad del Presidente del Banco Central," Research Department Publications, Inter-American Development Bank, Research Department 4586, Inter-American Development Bank, Research Department.
  7. Christopher Bowdler & Adeel Malik, 2005. "Openness and inflaton volatility: Cross-country evidence," Economics Series Working Papers, University of Oxford, Department of Economics 2005-W14, University of Oxford, Department of Economics.
  8. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, Elsevier, vol. 37(C), pages 120-126.
  9. Miguel Rueda, 2008. "Breaking Credibility in Monetary Policy: The Role of Politics in the Stability of the Central Banker," Research Department Publications, Inter-American Development Bank, Research Department 4585, Inter-American Development Bank, Research Department.

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