The trade-off between monetary and fiscal solidity : international lenders and political instability
This paper analysis the intertemporal public finance decision under political instability. The government’s choice between inflationary finance and foreign debt is constrained by an interest rate, which is affected both by market conditions and debt conditionality. The main result is that there is typically a trade-off between seigniorage taxation and foreign debt. There are two implications. First, monetary and fiscal solidity can typically not be achieved at the same time. Second, myopic behaviour produced by political instability leads to a reduction of seigniorage, not to an increase as argued, for instance, by Cukierman, Edwards and Tabellini (AER, 1992).
|Date of creation:||May 2004|
|Date of revision:|
|Contact details of provider:|| Postal: UCD, Belfield, Dublin 4|
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
- Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989.
"Seigniorage and Political Instability,"
NBER Working Papers
3199, National Bureau of Economic Research, Inc.
- Devereux, Michael B. & Wen, Jean-Francois, 1998. "Political instability, capital taxation, and growth," European Economic Review, Elsevier, vol. 42(9), pages 1635-1651, November.
- William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
- Isaac Ehrlich & Francis T. Lui, 1999. "Bureaucratic Corruption and Endogenous Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S270-S293, December.
- Bohn, Frank, 2002.
"Public Finance under Political Instability and Debt Conditionality,"
Economics Discussion Papers
8843, University of Essex, Department of Economics.
- Bohn, Frank, 2003. "Public Finance under Political Instability and Debt Conditionality," Royal Economic Society Annual Conference 2003 25, Royal Economic Society.
- repec:esx:essedp:540 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:ucn:wpaper:200408. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicolas Clifton)
If references are entirely missing, you can add them using this form.