Fiscal Deficits, Seigniorage and External Debt: The Case of Greece
George Alogoskoufis () and
Nicos Christodoulakis ()
No 468, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper investigates the relation between the rise in external debt and fiscal developments in Greece. We use an intertemporal model of optimal private-sector savings to argue that stabilization of the public debt/GDP ratio will be sufficient to stabilize the external debt/GDP ratio as well. Our results suggest that stabilization of the public debt/ GDP ratio at a given level through higher taxation will result in a higher external debt/GDP ratio than stabilization at the same level through a reduction in (non-interest) government expenditure. They also suggest that in the case of Greece there is no further scope for a steady-state increase in seigniorage revenue. In fact, the inflation rate slightly exceeds the seigniorage-maximizing rate. We calculate that if the public sector debt were to be stabilized at its current level of approximately 100% of GDP, the primary deficit (i.e., the deficit excluding interest payments) would have to fall to 0.3% of GDP from its projected ratio of 6.5% in 1990 and 5.1% in 1991.
Keywords: Greece; Inflation; Public and External Deficits and Debts; Seigniorage; Stabilization (search for similar items in EconPapers)
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