Virtual Deficits and the Patinkin Effect

Eliane Cardoso

No 1998/041, IMF Working Papers from International Monetary Fund

Abstract: The paper develops a model of inflationary finance that defines the fiscal deficit as a function of the virtual deficit—a deficit that would be observed if inflation were zero. It studies the negative relationship between the inflation rate and real government expenditures—the Patinkin effect. The model outperforms others in explaining four-digit inflation rates that never explode into hyperinflation. It also explains how apparently expansionist fiscal policies end in real deficits that are small and compatible with the small amount of seigniorage that can be collected at high inflation rates. Finally, it applies the model to the case of Brazil.

Keywords: WP; budget deficit; inflation rate; inflation; fiscal deficits; seigniorage; reverse Tanzi effect; stabilization; reserve requirement; rate of inflation; inflation inertia; virtual budget deficit; Patinkin effect; steady-state inflation rate; revenue-maximizing inflation rate; money growth; government consumption expenditure; inflation stabilization; Government debt management; Budget planning and preparation; Real interest rates (search for similar items in EconPapers)
Pages: 40
Date: 1998-03-01
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=2550 (application/pdf)

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:imf:imfwpa:1998/041

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().