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Effects of fiscal transparency on inflation and inflation expectations: Empirical evidence from developed and developing countries

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  • Montes, Gabriel Caldas
  • da Cunha Lima, Luiza Leitão

Abstract

Based on the arguments that a more transparent fiscal system provides policymakers with incentives to adopt better policies, in this study, we assess whether fiscal transparency affects inflation, inflation volatility, inflation expectations and expected inflation volatility. We analyze the efforts made by 82 countries in terms of increasing fiscal transparency and, based on panel data methodology, we estimate the effects of fiscal transparency on inflation and inflation expectations, as well as on inflation volatility and inflation expectations volatility. Our study is the first to present this empirical evidence, representing a contribution to the literature. The findings suggest that countries with higher levels of fiscal transparency tend to have lower inflation rates and lower inflation volatility, as well as expectations of lower inflation and less volatility in inflation expectations. The results also suggest that fiscal transparency has a stronger effect on inflation in the sample containing inflation targeting developing countries.

Suggested Citation

  • Montes, Gabriel Caldas & da Cunha Lima, Luiza Leitão, 2018. "Effects of fiscal transparency on inflation and inflation expectations: Empirical evidence from developed and developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 26-37.
  • Handle: RePEc:eee:quaeco:v:70:y:2018:i:c:p:26-37
    DOI: 10.1016/j.qref.2018.06.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal transparency; Inflation; Inflation expectation; Volatility;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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