EconPapers    
Economics at your fingertips  
 

Can Public Spending Cuts be Inflationary?

Willem Buiter

No 2528, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper uses a demand for seigniorage revenue and supply of seigniorage revenue approach to determine the consequences 0 cots in public spending for the rate of inflation. Monetary financing is viewed as the residual financing mode, with tax rates and pubic debt-GDP ratios held constant. In a small open economy with an exogenous real interest rate, cuts n public consumption spending will lower the inflation rate n the revenue-efficient region of the seigniorage Laffer curve. When there are cuts in public sector capital formation , the inflation rate ran rise even in the seigniorage-efficient region. This sill be the case if the expenditure effect which reduces the deficit one-for-one) is more than offset by direct and indirect revenue effects (which raise the deficit) and by an adverse money demand effect. When the real interest rate is endogenous, the scope for inflation-increasing public spending cuts is enhanced.

Date: 1988-03
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as "Can Public Spending Cuts be Inflationary?" from Principles of Budgeting and Financial Policy, ed. by Willem H. Buiter, Brighton, Sussex U.K.: Wheatsheaf Books, Ltd., 1989.

Downloads: (external link)
http://www.nber.org/papers/w2528.pdf (application/pdf)

Related works:
Working Paper: Can Public Spending Cuts be Inflationary? (1988) Downloads
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:nbr:nberwo:2528

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2528

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-19
Handle: RePEc:nbr:nberwo:2528