The public price control trap: the example of energy inputs

Décio Katsushigue Kadota () and Carlos Azzoni

Brazilian Journal of Political Economy, 1996, vol. 16, issue 2, 217-235

Abstract: The paper argues that in controlling public prices government gets into a trap:this control does not reduce inflation as expect in the first moment and activates factorsthat will increase it later on. The analysis is developed for government administered pricesin the area of energy and employs an input-output model that takes into account the directand indirect impacts of price changes. When public prices are reduced, the impact on theinflation is small; but, since this create financial difficulties for the public companies, theywill either demand government resources and/or price appreciation later on. These will actthrough price expectations to increase inflation more than proportionally in the future. JEL Classification: D57; E31.

Keywords: Inflation; interventionism; input-output matrix; electricity (search for similar items in EconPapers)
Date: 1996
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