The trade-off between monetary and fiscal solidity : international lenders and political instability

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Title: The trade-off between monetary and fiscal solidity : international lenders and political instability
Authors: Bohn, Frank
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Date: May-2004
Online since: 2010-01-19T14:35:58Z
Abstract: 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).
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP04/08
Keywords: Debt conditionalityMyopic behaviourPolitical economySeigniorageGovernment deficitPublic finance
Subject LCSH: Finance, Public
Political stability
Seigniorage (Finance)
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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