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The public price control trap: the example of energy inputs

Author

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  • Décio Katsushigue Kadota
  • Carlos Roberto Azzoni

Abstract

The paper argues that in controlling public prices government gets into a trap:this control does not reduce inflation as expect in the first moment and activates factorsthat will increase it later on. The analysis is developed for government administered pricesin the area of energy and employs an input-output model that takes into account the directand indirect impacts of price changes. When public prices are reduced, the impact on theinflation is small; but, since this create financial difficulties for the public companies, theywill either demand government resources and/or price appreciation later on. These will actthrough price expectations to increase inflation more than proportionally in the future. JEL Classification: D57; E31.

Suggested Citation

  • Décio Katsushigue Kadota & Carlos Roberto Azzoni, 1996. "The public price control trap: the example of energy inputs," Brazilian Journal of Political Economy, Center of Political Economy, vol. 16(2), pages 217-235.
    • Handle: RePEc:ekm:repojs:v:16:y:1996:i:2:p:217-235:id:1202
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    More about this item

    Keywords

    Inflation; interventionism; input-output matrix; electricity;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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