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The Political Economy of Seigniorage

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  • Mr. Ari Aisen
  • Mr. Francisco José Veiga

Abstract

While most economists agree that seigniorage is one way governments finance deficits, there is less agreement about the political, institutional, and economic reasons for relying on it. This paper investigates the main determinants of seigniorage using panel data on about 100 countries, for the period 1960-1999. Estimates show that greater political instability leads to higher seigniorage, especially in developing, less democratic, and socially polarized countries, with high inflation, low access to domestic and external debt financing and with higher turnover of central bank presidents. One important policy implication of this study is the need to develop institutions conducive to greater economic freedom as a means to lower the reliance on seigniorage financing of public deficits.

Suggested Citation

  • Mr. Ari Aisen & Mr. Francisco José Veiga, 2005. "The Political Economy of Seigniorage," IMF Working Papers 2005/175, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/175
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    More about this item

    Keywords

    WP; GDP; country; central bank; government crisis; Seigniorage; political instability; institutions; ind. country; seigniorage government; country's creditworthiness; way country; sensitivity analysis; ability to tax; Monetary base; Inflation; Central bank autonomy; Agricultural sector; Africa; Western Hemisphere; Asia and Pacific; Global;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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