Political Economy of Monetary and Budgetary Policy

Frederick (Rick) van der Ploeg

International Economic Review, 1995, vol. 36, issue 2, 427-39

Abstract: Even though all debt and wage contracts are indexed, there is an incentive to levy a surprise inflation tax as this erodes the real value of debt service, permits a cut in the tax rate, and boosts private consumption. With rules it is optimal to smooth tax and seigniorage revenues. However, with discretion (associated with the Markov-perfect equilibrium) the government finances an increase in spending through additional interest income paid on assets that are generated through a temporary bout of inflation and taxation. The electorate prefers to appoint a central banker more concerned with inflation than the median voter. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1995
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://links.jstor.org/sici?sici=0020-6598%2819950 ... 0.CO%3B2-1&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ier:iecrev:v:36:y:1995:i:2:p:427-39

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Harold L. Cole

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and ().