Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72349
Authors: 
Bohn, Frank
Year of Publication: 
2004
Series/Report no.: 
Working Paper Series, UCD Centre for Economic Research 04/08
Abstract: 
This paper analysis the intertemporal public finance decision under political instability. The government’s choice between inflationary finance and foreign debt is constrained by an interest rate, which is affected both by market conditions and debt conditionality. The main result is that there is typically a trade-off between seigniorage taxation and foreign debt. There are two implications. First, monetary and fiscal solidity can typically not be achieved at the same time. Second, myopic behaviour produced by political instability leads to a reduction of seigniorage, not to an increase as argued, for instance, by Cukierman, Edwards and Tabellini (AER, 1992).
Subjects: 
debt conditionality
myopic behaviour
political economy
seigniorage
government deficit
public finance
JEL: 
E63
F34
O23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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