Politically Optimal Choice of Inflation Policy

Byung Hee Soh
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Byung Hee Soh: Pohang Institute of Science and Technology

Korean Economic Review, 1993, vol. 9, 5-23

Abstract: The negative effect of welfare loss due to inflation on voting decisions of the electorate is examined. The incumbent politician's politically optimal inflation policy which minimizes the loss in votes attributable to inflation is formulated. The characteristics of the resulting political business cycles under different choices of inflation policy are analyzed. It is found that the political business cycles are less likely to occur in countries where the length of the electoral term is longer or the indexation of inflation is more extensive.

Date: 1993
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