Can Public Spending Cuts be Inflationary? / Willem H. Buiter.

Format:

Book

Author/Creator:

Buiter, Willem H.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2528.

NBER working paper series no. w2528

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1988.

Summary:

The paper uses a demand for seigniorage revenue and supply of seigniorage revenue approach to determine the consequences 0 cots in public spending for the rate of inflation. Monetary financing is viewed as the residual financing mode, with tax rates and pubic debt-GDP ratios held constant. In a small open economy with an exogenous real interest rate, cuts n public consumption spending will lower the inflation rate n the revenue-efficient region of the seigniorage Laffer curve. When there are cuts in public sector capital formation , the inflation rate ran rise even in the seigniorage-efficient region. This sill be the case if the expenditure effect which reduces the deficit one-for-one) is more than offset by direct and indirect revenue effects (which raise the deficit) and by an adverse money demand effect. When the real interest rate is endogenous, the scope for inflation-increasing public spending cuts is enhanced.

Notes:

Print version record

March 1988.