Seigniorage and Political Instability

Alex Cukierman, Sebastian Edwards and Guido Tabellini

American Economic Review, 1992, vol. 82, issue 3, 537-55

Abstract: The importance of seigniorage relative to other sources of government revenue differs markedly across countries. This paper tries to explain this regularity by studying a political model of tax reform. The model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and, thus, will rely more heavily on seigniorage. This prediction of the model is tested on cross-sectional data for seventy countries. The authors find that, after controlling for other variables, political instability is positively associated with seigniorage. Copyright 1992 by American Economic Association.

Date: 1992
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