Are Export Subsidies Less Inflationary Than Devaluation?

Edward F. Buffie

Canadian Journal of Economics, 1997, vol. 30, issue 4, 1046-56

Abstract: In this paper, the author analyzes the argument that export subsidies are less inflationary than devaluation in a fairly general dynamic model of the small open economy. In the benchmark case where real output is constant, export subsidies never outperform devaluation when the two instruments are required to produce the same cumulative payments surplus. A continuously tax-financed export subsidy gives rise to the same path for the aggregate price level as devaluation. A subsidy that temporarily worsens the fiscal deficit, however, is more inflationary than devaluation over all time horizons.

Date: 1997
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