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Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation

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  • Yannick Lucotte

    () (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

Inflation targeting is a monetary policy framework which was adopted by several emerging countries over the last decade. Previous empirical studies suggest that inflation targeting has significant effects on either inflation or inflation variability in emerging targeting countries. But, by reinforcing the disinflation process and so, by reducing drastically seigniorage revenue, the adoption of this monetary policy framework could also affect the design of fiscal policy. In a recent paper, Minea and Villieu (2009a) show theoretically that inflation targeting provides an incentive for governments to improve institutional quality in order to enhance tax revenue performance. In this paper, we test this theoretical prediction by investigating whether the adoption of inflation targeting affects the fiscal effort in emerging markets economies. Using propensity score matching methodology, we evaluate the “treatment effect” of inflation targeting on fiscal mobilization in thirteen emerging countries that have adopted this monetary policy framework by the end of 2004. Our results show that, on average, inflation targeting has a significant positive effect on public revenue collection.

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  • Yannick Lucotte, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," Post-Print halshs-00505140, HAL.
  • Handle: RePEc:hal:journl:halshs-00505140
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00505140v2
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    References listed on IDEAS

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    1. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters,in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416 National Bureau of Economic Research, Inc.
    2. Minea, Alexandru & Villieu, Patrick, 2009. "Threshold effects in monetary and fiscal policies in a growth model: Assessing the importance of the financial system," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 304-319, June.
    3. Yannick Lucotte, 2009. "Central Bank Independence and Budget Deficits in Developing Countries: New Evidence from Panel Data Analysis," Post-Print halshs-00447398, HAL.
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    5. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters,in: The Inflation-Targeting Debate, pages 249-282 National Bureau of Economic Research, Inc.
    6. Miguel A Savastano & Paul R Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
    7. Helene Ehrhart, 2012. "Assessing the relationship between democracy and domestic taxes in developing countries," Economics Bulletin, AccessEcon, vol. 32(1), pages 551-566.
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    10. Huang, Haizhou & Wei, Shang-Jin, 2006. "Monetary policies for developing countries: The role of institutional quality," Journal of International Economics, Elsevier, vol. 70(1), pages 239-252, September.
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    17. Dreher, Axel & Sturm, Jan-Egbert & de Haan, Jakob, 2008. "Does high inflation cause central bankers to lose their job? Evidence based on a new data set," European Journal of Political Economy, Elsevier, vol. 24(4), pages 778-787, December.
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    25. repec:hrv:faseco:34721963 is not listed on IDEAS
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    Keywords

    Inflation targeting; Public revenue; Treatment effect; Propensity score matching; Emerging countries;

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