Inflation tax and deficit financing in Egypt
AbstractAlthough Egypt's budget deficit is far above the level found in other low-middle-income countries, the inflation rate in Egypt has never been very high. This is because the country has managed to finance these budget deficits by resorting to an inflation tax that, at 11 percent of GDP in 1987, constitutes a large share of total tax revenues. By contrast, conventional tax revenues come to only 17 percent of GDP. The authors report a large, underlying inflation-tax base - from which the Egyptian government has collected substantial revenues which exist because of money balances held by the private sector. The authors find that the private business sector, with anet borrowing position of 14 percent of GDP, has benefited from the inflation tax. Households, on the other hand, pay more of the inflation tax than other sectors, turning over 8 percent of GDP to the government. This compares with 0.5 percent of GDP that households pay in income tax. Although income tax in Egypt is fairly progressive, the greater reliance on the inflation tax makes Egypt's overall tax structure fairly regressive. The authors argue that : i) understanding the role and size of the inflation tax will help in determining the sequencing and equity aspects of any future reform program; and ii) the financial side cannot continue to bear the burden for the real side; Egypt must move swiftly to cut its budget deficit, the underlying cause of its dependence on the inflation tax.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 668.
Date of creation: 31 May 1991
Date of revision:
Economic Theory&Research; Public Sector Economics&Finance; Banks&Banking Reform; Environmental Economics&Policies; Macroeconomic Management;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giugale, Marcelo & Hinh T. Dinh, 1990. "Money, inflation, and deficit in Egypt," Policy Research Working Paper Series 553, The World Bank.
- Dailami, Mansoor & Hinh T. Dinh, 1991. "Interest rate policy in Egypt : its role in stabilization and adjustment," Policy Research Working Paper Series 655, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.