HOW LONG CAN INFLATION TAX COMPENSATE FOR THE LOSS OF GOVERNMENT REVENUE IN WAR ECONOMIES? EVIDENCE FROM BURUNDI

Janvier Nkurunziza
Additional contact information
Janvier Nkurunziza: Centre for the Study of African Economies

Development and Comp Systems from University Library of Munich, Germany

Abstract: The paper shows that civil war in Burundi in the 1990s has provoked an unprecedented decline in government revenue. Both foreign aid transfers and revenue from domestic sources dried up, inducing the government to rely more on inflation tax. Using quarterly data covering the period from 1980:1 to 2002:4 to measure the sensitivity of money demand to inflation we find that the long-run semi-elasticity of inflation to real money in circulation trebled between the pre-war to the war period. The remarkable increase of the semi-elasticity translates what is known in the literature as economic agents 'flight from domestic currency', a strategy that limits the government's capacity to use inflation tax to compensate for the loss in more traditional revenue sources. Shedding light on the behaviour of the demand for real money amidst persistent political and economic instability, illustrates the limits of using inflation and money creation as a dependable source of government revenue.

JEL-codes: O P (search for similar items in EconPapers)
Pages: 39 pages
Date: 2004-09-28
New Economics Papers: this item is included in nep-ifn
Note: Type of Document - pdf; pages: 39
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/dev/papers/0409/0409065.pdf (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:wpa:wuwpdc:0409065

Access Statistics for this paper

More papers in Development and Comp Systems from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).