Inflation and the Measurement of Fiscal Deficits

Vito Tanzi, Mario I. Blejer and Mario O. Teijeiro
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Vito Tanzi: International Monetary Fund
Mario I. Blejer: International Monetary Fund
Mario O. Teijeiro: International Monetary Fund

IMF Staff Papers, 1987, vol. 34, issue 4, 711-738

Abstract: The presence of high inflation raises questions about the usefulness of the conventional measure of the fiscal deficit as a gauge of necessary fiscal adjustment. Economists are divided on this issue: those who believe that regardless of inflation the conventional measure is the relevant one; and those who maintain that a measure that excludes from the deficit the part of interest payments that compensates bondholders for inflation is the correct one. This paper analyzes these issues, concluding that neither measure gives the right signal, and that consequently both measures should be calculated when inflation is high.

Date: 1987
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