| Abstract: | Disinflation, especially if coupled with financial market liberalisation, has implications for public finances because it lowers the revenue from the inflation tax. There might thus be a trade-off between the criteria on inflation convergence and public finances that were set at Maastricht. This paper measures the effects of lower inflation and financial market integration on the revenue from seigniorage for the EC member countries that have in the past relied most heavily on this source of revenues. The main result is that disinflation alone will reduce the revenue from seigniorage by over 2% of GDP in Greece, but much less than 1% of GDP in the other countries considered here. The overall impact of EMU (i.e. disinflation plus financial market integration) is a loss of seigniorage revenues of 2.9% of GDP in Greece and a little over 1% of GDP in Portugal and Spain. Two different measures of seigniorage yield similar results regarding the overall change, but differ regarding the transitional period and the level. |
