Government Expenditures, Deficits, and Inflation: On the Impossibility of a Balanced Budget Public Deposited

Creator Series Issue number
  • 237
Date Created
  • 1984-03
  • A model is presented in which governments can select real expenditure levels which are feasible, hut are sufficiently high that a balanced budget is impossible. Thus governments with large expenditures are committed to inflationary finance schemes. This is the case even though the governments in question have access to lump-sum taxes. In addition, the model can explain why poorer countries tend to make heavier use of the inflation tax than do wealthier countries, and can account for the existence of country-specific fiat monies.

Subject (JEL) Mot-clé Date Modified
  • 07/11/2019
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
  • Federal Reserve Bank of Minneapolis
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