On Deficit Financing

Swamy Dalip

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: The main conclusion emerging from the analysis is that the inflationary impact of a budget deficit depends upon the method used to finance that deficit. Using a static and a dynamic macroeconomic model it has been shown that the proportion of budget deficit financed by money creation is a crucial determinent of the rate of price inflation. The price inflation will be greater, the higher the proportion of budget deficit financed by money creation. Conditions under which this conclusion holds have derived. A crude empirical test is provided.

Date: 1974-02-01
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Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:wp00100

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