IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Fiscal Deficits and Inflation in Portugal: A Long Term Perspective

Listed author(s):
  • Tran, Dang T.


    (California State University, Department of Economics and Statistics, College of Business and Economics)

Registered author(s):

    This paper examines the question whether fiscal deficits generate inflation from a long term perspective. Cointegration and Granger-causality tests with structural breaks are employed. Using long-run data for Portugal, we have shown that the price level and fiscal deficits, whether measured in amounts or as percentages of output, contain unit roots. Structural changes at various break dates do not affect their unit root processes. The price level and deficits ratios are cointegrated but the price level and deficit amounts are not. The price level and fiscal deficits as ratios of deficits to output move in an equilibrium relation in the long run. In the short-run, the error-correction model shows a feedback effect between them: higher deficit ratio raises the price level one period which in turn contributes to higher deficit ratio in the next period. Growth in deficits, whether measured by amounts or by deficit-output ratios, positively Granger-causes inflation for the whole period 1850-1985. The view held by demand oriented theories such as the traditional Keynesian, the new Keynesian, and the new classical schools appears to be supported by the lognterm data for Portugal: not only fiscal deficits tend to raise the price level, but their growth also tends to raise inflation. In addition, the Tanzi-Oliver effect is also confirmed in the error-correction model: rising prices worsen the fiscal deficits. Our results contradict both the supply-side economics and the Ricardian equivalence notion that fiscal deficits do not raise the price level or that an increase in fiscal deficits do not lead to inflation.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Camera di Commercio Industria Artigianato Agricoltura di Genova in its journal Economia Internazionale / International Economics.

    Volume (Year): 57 (2004)
    Issue (Month): 1 ()
    Pages: 59-76

    in new window

    Handle: RePEc:ris:ecoint:0143
    Contact details of provider: Postal:
    Via Garibaldi 4, 16124 Genova, Italy

    Phone: +39 010 27041
    Fax: +39 010 2704222
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ris:ecoint:0143. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Procopio)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.