Fiscal Consequences of Monetary Integration within a Common Economic Area: The Case of Belarus,Kazakhstan and Russia

This article analyses the possible impact of planned monetary integration on public sector revenue from seigniorage in Belarus, Kazakhstan and Russia. Using the concept of total gross seigniorage, we investigate the main sources and uses of the central bank revenue in these countries. Special attention is given to the role of seigniorage revenue in financing public sector expenditure. Amounts of yearly transfers from central banks to the state budget in Belarus, Kazakhstan and Russia are evaluated, and the size of potential gains and losses in seigniorage revenue under different scenarios of monetary integration are estimated.     

Do domestic bond markets participation help reduce financial dollarization in developing countries?

In this paper, I analyze the effect of domestic sovereign bond market (BM) participation on financial dollarization using a large panel of 114 developing countries over the period 1984–2009. Building on entropy balancing, my results reveal strong evidence that domestic BM participation significantly reduces financial dollarization in domestic BM countries compared to their non-domestic BM peers. Moreover, I find that the favorable impact of domestic BM on financial dollarization (i) is larger for inflation targeting countries compared to non-inflation targeting countries, (ii) is apparent exclusively in a non-pegged exchange rate regime, (iii) and is larger when there are fiscal rules that constrain the discretion of fiscal policy makers. Finally, I show that the induced drop in inflation rate and its variability, nominal exchange rate variability, and seigniorage revenue are potential transmission mechanisms through which the presence of domestic BM reduces financial dollarization in domestic BM countries.     

The effects of financial crisis on fiscal positions

The recent financial crisis was characterized by the sizeable fiscal cost of banking sector bail out operations and the significant automatic and discretionary fiscal policy response to shrinking output, which have put increased pressure on public finances in many industrialized countries. This paper tries to evaluate the impact of financial crisis episodes on debt developments. The findings indicate that severe financial crisis episodes increase the stock of debt by 2.7%–4.0% of GDP, on average in the 20 OECD countries examined. Ιn countries with big financial sectors it ranges from 4.2%–5.3% of GDP and in countries with smaller financial sectors it is about 1.4%–1.7% of GDP. The primary balance and the cyclically adjusted fiscal policy stance ease by about 2.6% of GDP and 1.6% of potential GDP, respectively, in the event of a severe financial market crash. Expansionary fiscal interventions are more pronounced in countries with sizable financial sectors. I find significant evidence that a financial market collapse paves the way for a subsequent deterioration in debt ratios.     

Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries

This paper measures sacrifice ratios for all countries in the world over an approximately forty year time period, in addition to exploring the determinants of worldwide sacrifice ratios. We test the most commonly-cited determinants: the speed of disinflation, openness, inflation targeting, central bank independence, and political factors for both OECD and non-OECD countries. We find that the speed of disinflation is the most important determinant of OECD sacrifice ratios, but puzzlingly has no effect on non-OECD nations' disinflation costs. Instead we find evidence that greater central bank independence and more openness are associated with lower non-OECD sacrifice ratios. We also find that the ratio of government debt to GDP – a variable that is not important when it comes to OECD countries – is highly significant for non-OECD economies. Specifically, we find that higher indebtedness is associated with lower sacrifice ratios in non-OECD nations, suggesting that greater levels of debt do not lead to higher expectations of inflation. Furthermore we find evidence that the negative impact of debt on non-OECD sacrifice ratios is being driven by middle income economies.     

Tax revenue and (or?) trade liberalization

With the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues, further trade liberalization may be hindered unless they are able to develop alternative sources of revenue. Against a background of, and to inform, heightened theoretical controversy as to the appropriate balance between trade and other taxes (not least the VAT), this paper uses panel data for 117 countries over 32 years—cleaned for a variety of problems in standard data sources—to address a central question of fact: Have countries recovered from domestic taxes the revenues they have lost from past episodes of trade liberalization? For high income countries, the answer is clearly ‘yes.’ For middle income countries, there are robust signs of strong replacement both concurrently with the revenue loss and—essentially dollar-for-dollar—in the long run. Signs of significant recovery by low income countries are flimsier, however, and their experiences appear to have varied widely. The picture that emerges for low income countries is thus that replacement has been (and become) higher than previous studies have suggested, but sufficiently incomplete in many cases to give cause for concern.     

The sacrifice ratio and core inflation

The existing body of research that measures the sacrifice ratio and the determinants of the sacrifice ratio has crucially identified several disinflation episodes across many different countries, while also overwhelmingly finding evidence in favor of the “cold-turkey” approach to disinflation. However all previous studies in this topic are based exclusively on headline measures of inflation. In this paper we investigate what happens if we instead use core inflation to both identify disinflation episodes and measure the sacrifice ratio. Several important differences emerge: for example, headline inflation produces more disinflation episodes than core inflation does – something which is particularly conspicuous during the Great Recession – and episodes that are generally shorter in length. We also find that the argument in favor of the cold-turkey approach to reducing inflation disappears when combining the use of core inflation with sacrifice ratio measures that allow for varying persistent effects on output of disinflation.     

Does international integration matter for financial development in Africa?

This article analyses the links between international financial and trade integration and financial development in sub-Saharan African (SSA) countries. It is based on a panel data set using methods that tackle slope heterogeneity, cross-sectional dependence and nonstationarity. The results do not point to a general direct robust link between trade and financial integration and financial development in SSA, once we control for other factors such as GDP per capita and inflation. The findings may be due to a number of factors including distortions in domestic financial markets, relatively weak institutions and/or poor financial sector supervision. We find some indication that financial integration is more important for financial development in countries with better institutional quality. Stronger scores in some measures of the quality of banking regulation and supervision are also linked to a positive association between integration and financial development in some of our results. Thus, African policy-makers should be cautious about expectations regarding immediate gains for financial development from greater international integration. Such gains are more likely to occur slowly and through indirect channels.     

Corruption, inflation and growth

We present a model in which the embezzlement of tax revenues by public officials leads the government to rely more on seigniorage to finance its expenditures. This raises inflation which depresses investment and growth via a cash-in-advance constraint.     

When Does an Inflation Target Yield the Second Best?

It is shown that an inflation target does not establish the second best if the central bank is independent and the government collects seigniorage revenues. To eliminate excessive inflation and ensure that stabilization is efficient, society should combine an optimal inflation target with a central bank that attaches less weight to inflation stabilization than the public does.     

ELIMINATING THE INFLATIONARY FINANCE TRAP IN A POLITICALLY UNSTABLE COUNTRY: DOMESTIC POLITICS VS. INTERNATIONAL PRESSURE

This paper presents an intertemporal political economy model of public finance relevant for developing and transition countries where there is inherent political instability. As in Cukierman et al. (1992) , it is shown that political instability causes myopic behaviour by a rational government resulting in high levels of revenue from seigniorage. It is then argued that inflationary finance also increases barter and currency substitution, but if the government tries to suppress them, seigniorage taxation rises even more. Only international financial pressure can help eliminate the inflationary finance trap, but becomes less effective as the instability increases.     

A BENEFIT-COST ANALYSIS OF DISINFLATION

This paper contains a benefit-cost analysis of disinflation. The analysis measures the costs of disinflation by "sacrifice ratios"—the output lost during a disinflation-induced recession. The benefits of disinflation are from recent research that associates lower inflation with higher GDP growth rates. The analysis calculates sacrifice ratios and the growth effects of disinflation and critiques the methods that economists typically use to calculate these benefits and costs. The estimates are quite fragile but nevertheless show that the lost output from a disinflation-induced recession typically will be recouped in 10 to 15 years.     

论政府理财方式转变与公用事业体制改革

在社会时政府公共服务支出需求大幅增加的现实压力下，财政收支长期处于一种不均衡的状态。为解决这一矛盾，各级财政在加强预算管理的同时，扩大理财视野，推进理财方式创新，在公用事业领域开始运用市场的理念和方式运作财政资金。在此背景下，有必要研究这一改革过程中出现的问题和相应的时策措施。     

Seigniorage Wealth and Redistribution in Central and Eastern European Countries

The analysis presented in this article focuses on seigniorage revenues in five Central and Eastern European Countries: Bulgaria, the Czech Republic, Hungary, Poland and Romania. A comprehensive discrete period accounting framework for measuring the sources and uses of seigniorage in the 1990s is presented. The framework is based upon the gross concept of seigniorage that defines seigniorage in the broadest possible sense as the sum of revenues resulting from the monopoly power to issue money. Legal, institutional and operational details which are relevant for the creation of base money in a country are taken into account. The article reveals similarities and differences in seigniorage wealth between the countries under scrutiny, evaluates the magnitude of seigniorage and shows that accession to the European Monetary Union will create significant once-and-for-all gains of seigniorage wealth for the countries resulting from redistributing seigniorage wealth.     

Destabilizing effects of a successful stabilization: a forward-looking explanation of the second Hungarian hyperinflation

Summary. The extreme severity of the second Hungarian hyperinflation is argued to be related to the unusual way in which the inflation was eventually stabilized. The historical features of this episode are represented in a general equilibrium model, which incorporates a transition from one monetary regime to another. During the inflation the government finances a fixed deficit with seigniorage revenue. After the stabilization the government budget is balanced and the central bank engages in a program of subsidized lending to the private sector. Stabilization is achieved by targeting a low inflation rate path through adjustments in the quantity of central bank lending. I show that under this stabilization policy (1) the dynamic equilibrium path of the economy is indeterminate and (2) arbitrarily high pre-stabilization inflation rates are possible. Received: November 5, 1998; revised version: November 30, 1998     

Tax collection lags and the revenue-maximising inflation

When tax payments take place with a considerable time lag, inflation erodes part of their real value, and this loss may be comparable or even surpass the well-known gains from seigniorage. The paper finds that for the economy of Greece, a reduction of inflation will actually raise the total sum of tax collection and seigniorage, thus easing and not aggravating the debt-accumulation process.     

Output gains from accelerating core inflation

Previous research finds that the analysis of sacrifice ratios–namely, identifying disinflation episodes, calculating the sacrifice ratio, and looking at its determinants–changes substantially when one moves from headline to core inflation. This paper examines whether similar findings are obtained when examining benefice ratios, and we find arguably even greater differences. Specifically, we see that headline inflation identifies far more inflationary episodes since the 1990s than core inflation does. Furthermore, Jordan’s (1997) argument that the speed of inflation is a negative and significant determinant of benefice ratios does not hold when we move from headline to core inflation, both within the U.S. and also across the OECD. We also find strong evidence that the initial level of GDP at the onset of an inflationary episode matters. In particular, output gains from accelerating inflation appear only to be beneficial for OECD countries that start with a low level of GDP. Conversely, countries that start with a high level of GDP should not pursue additional output gains from allowing a rise in inflation.     

An instrumental variables approach to estimating tax revenue elasticities: Evidence from Sub-Saharan Africa

This paper exploits the significant response of real GDP growth of Sub-Saharan African countries to exogenous international commodity price and rainfall shocks to construct instrumental variables estimates of the tax revenue elasticity IV estimates yield that a 1% increase in GDP increases tax revenues by up to 2.5%.     

Institutional Determinants of Financial Development in MENA countries

Developed and well regulated financial markets are usually seen as a precondition for an efficient allocation of resources and can foster long term economic growth. This paper explores the institutional determinants for financial development in the countries of the Middle East and North African (MENA) region. Institutional conditions are from the International Country Risk Guide. Panel‐econometric techniques are applied to assess the development in the banking sector and the stock market. As a main finding, institutional conditions are important in both financial segments, even after controlling for standard macroeconomic determinants and fixed effects. For the banking sector, corruption seems to be most decisive. For the stock market, the impact of corruption and law and order appear to be relevant. While per capita income and inflation do not seem to play a vital role, openness to foreign trade is quite important for all areas of financial development. Hence, overall, faster real economic integration is of key policy priority to improve financial development as a condition for higher GDP growth. Better law and enforcement practices and anti‐corruption policies are strategies to accompany this process.     

MONETARY EXPANSION AND PRODUCTIVE PUBLIC EXPENDITURE IN A CASH‐IN‐ADVANCE ECONOMY*

Using a dynamic optimization model that incorporates a cash‐in‐advance constraint on both consumption and investment and productive public capital financed by a lump‐sum tax and seigniorage, this paper analyses the steady‐state effects of an increase in the inflation rate (the money growth rate) on output, private capital and welfare. The effects are negative at high inflation rates. However, at low inflation rates, the effects depend on the amount of lump‐sum tax revenue collected and therefore are either positive or negative.     

The determinants of banking efficiency in Hong Kong 2004-2014

The cost efficiency of the Hong Kong Banking sector over the period 2004–2014 is estimated by data envelopment window analysis. A second stage regression analysis finds that bank size and GDP growth are positively associated with efficiency, whereas revenue diversification and inflation are associated with lower efficiency. Stock exchange listing status is associated with lower efficiency but no clear relationship between measures of market structure and efficiency is found.