Deforestation and Seigniorage in Developing Countries:Better Environment or Lower Inflation?
The forest covers an important share of land area in many developing countries and represents an important source of revenue for governments. The other major contribution to government revenues in developing countries comes from printing money, namely the seigniorage. Using a simple theoretical model, we show that tighter monetary policies exert a positive effect on deforestation rates. Consequently, there exists a substitution effect between deforestation rates and seigniorage. Empirical evidence for a panel of developing countries seems to support our theoretical conclusion. This finding sheds some new light on policies that limit seigniorage revenues, as for example IMF’s low-inflation recommendations.
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