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Virtual Deficits and the Patinkin Effect

Author

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  • Eliane A. Cardoso

Abstract

The paper develops a model of inflationary finance that defines the fiscal deficit as a function of the virtual deficit—a deficit that would be observed if inflation were zero. It studies the negative relationship between the inflation rate and real government expenditures—the Patinkin effect. The model outperforms others in explaining four-digit inflation rates that never explode into hyperinflation. It also explains how apparently expansionist fiscal policies end in real deficits that are small and compatible with the small amount of seigniorage that can be collected at high inflation rates. Finally, it applies the model to the case of Brazil.

Suggested Citation

  • Eliane A. Cardoso, 1998. "Virtual Deficits and the Patinkin Effect," IMF Working Papers 98/41, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:98/41
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    Cited by:

    1. Pekarski, Sergey, 2011. "Budget deficits and inflation feedback," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 1-11, February.
    2. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, vol. 39(1), pages 51-76, August.
    3. Santiago HERRERA & Fernando BLANCO, "undated". "The Quality of Brazilian Fiscal Adjustment, 1999 - 2001," EcoMod2004 330600066, EcoMod.
    4. Nauro F. Campos & Armando Castellar Pinheiro & Fabio Giambiagi & Maur??cio M. Moreira, 2002. "Does it Take a Lula to go to Davos? A Brief Overview of Brazilian Reforms, 1980-2000," William Davidson Institute Working Papers Series 2003-580, William Davidson Institute at the University of Michigan.
    5. Enrique Alberola & Manuel Montero, 2006. "Debt Sustainability and Procyclical Fiscal Policies in Latin America," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2006), pages 157-193, August.
    6. Salar, Laleena & Zaman, Khalid & Khilji, Bashir Ahmad & Khan, Muhammad Mushtaq & Lodhi, Mohammad Saeed, 2013. "The consequences of revenue gap in Pakistan: Unveiling the reality," Economic Modelling, Elsevier, vol. 30(C), pages 281-294.

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