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Virtual Deficits and the Patinkin Effect

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  • Eliane A. Cardoso
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    Abstract

    The paper develops a model of inflationary finance that defines the fiscal deficit as a function of the virtual deficit—a deficit that would be observed if inflation were zero. It studies the negative relationship between the inflation rate and real government expenditures—the Patinkin effect. The model outperforms others in explaining four-digit inflation rates that never explode into hyperinflation. It also explains how apparently expansionist fiscal policies end in real deficits that are small and compatible with the small amount of seigniorage that can be collected at high inflation rates. Finally, it applies the model to the case of Brazil.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/41.

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    Length: 40
    Date of creation: 01 Mar 1998
    Date of revision:
    Handle: RePEc:imf:imfwpa:98/41

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    Cited by:
    1. Enrique Alberola & José M. Montero, 2006. "Debt sustainability and procyclical fical policies in Latin America," Banco de Espa�a Working Papers 0611, Banco de Espa�a.
    2. Pär Österholm & Erik Hjalmarsson, 2007. "Testing for Cointegration Using the Johansen Methodology when Variables are Near-Integrated," IMF Working Papers 07/141, International Monetary Fund.
    3. Nauro F. Campos & Armando Castellar Pinheiro & Fabio Giambiagi & Maurício M. Moreira, 2002. "Does it Take a Lula to go to Davos? A Brief Overview of Brazilian Reforms, 1980-2000," William Davidson Institute Working Papers Series 2003-580, William Davidson Institute at the University of Michigan.
    4. Sergey Pekarski, 2007. "Budget deficits and inflation feedback," Working Papers WP13_2007_12, Laboratory for Macroeconomic Analysis.
    5. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, vol. 39(1), pages 51-76, August.
    6. repec:idb:brikps:4198 is not listed on IDEAS

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