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Inflationary bias and state owned financial institutions

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  • Novaes Filho, Walter
  • Werlang, Sérgio Ribeiro da Costa

Abstract

This article explains why the existence of state owned financial institutions makes it more difficult for a country to balance its budget. We show that states can use their financiaI institutions to transfer their deficits to the federal govemment. As a result, there is a bias towards Iarge deficits and high inflation rates. Our model also predicts that state owned financiaI institutions should underperform the market, mainly because they concentrate their portfolios on non-performing loans to their own shareholders, that is, the states. Brazil and Argentina are two countries with a history of high inflation that confirm our predictions .

Suggested Citation

  • Novaes Filho, Walter & Werlang, Sérgio Ribeiro da Costa, 1994. "Inflationary bias and state owned financial institutions," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 242, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:epgewp:242
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    6. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 567-586.
    7. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
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    Cited by:

    1. Fernandez, Brena Paula Magno & Silveira, Antonio Maria da, 1994. "The economist Machiavelli," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 250, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    2. Ohana, Eduardo Felipe, 1997. "The Brazilian 1994 stabilization plan: an analytical view," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 307, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    3. Cardoso, Renato Fragelli, 1997. "Entrepreneurial risk and labor's share in output," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 51(2), April.
    4. Cysne, Rubens Penha & Costa, Sergio Gustavo Silveira da, 1997. "Effects of the real plan of the Brazilian banking system," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 304, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    5. Ferreira, Pedro Cavalcanti, 1997. "A note on growth, welfare and public policy," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 298, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    6. Ferreira, Pedro Cavalcanti, 1997. "Infrastructure privatization in a neoclassical economy : macroeconomic impact and welfare computation," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 297, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    7. Júnior, Antonio Marcos Duarte & Werlang, Sérgio Ribeiro da Costa, 1996. "A Model to Estimate the Us Term Structure of Interest Rates," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 16(1), November.
    8. Boudriga, Abdelkader & Boulila, Neila & Jellouli, Sana, 2009. "Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?," MPRA Paper 18068, University Library of Munich, Germany.
    9. Ferreira, Pedro Cavalcanti, 1996. "Sustained growth, government expenditure and inflation," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 278, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    10. Flôres Junior, Renato Galvão & Ginsburgh, Victor, 1996. "Dynamic hidonic regressions : computation and properties," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 275, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    11. Us, Vuslat, 2017. "Dynamics of non-performing loans in the Turkish banking sector by an ownership breakdown: The impact of the global crisis," Finance Research Letters, Elsevier, vol. 20(C), pages 109-117.
    12. Ferreira, Pedro Cavalcanti, 1995. "Welfare and fiscal policy with public goods and infrastructure," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 264, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).

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