Seigniorage and Political Instability

54 Pages Posted: 29 Jun 2004 Last revised: 15 Apr 2008

See all articles by Alex Cukierman

Alex Cukierman

Tel Aviv University - Eitan Berglas School of Economics; Interdisciplinary Center (IDC) Herzliyah; Centre for Economic Policy Research (CEPR)

Sebastian Edwards

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area; National Bureau of Economic Research (NBER)

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Date Written: December 1989

Abstract

The importance of seignorage relative to other sources of government revenue differs markedly across countries. The main theoretical implication of this paper is that countries with more unstable and polarized political systems rely more heavily on seignorage. This result is obtained within the context of a political model of tax reform. The model implies that the more unstable and polarized the political system, the more inefficient is the equilibrium tax structure (in the sense that tax collection is more costly to administer), and the higher therefore, the reliance on seignorage. This prediction of the model is tested on cross-section data for 79 countries. It is found that, after controlling for other variables, political instability significantly contributes to explain the fraction of government revenue derived from seignorage. This finding is very robust. We also find that seignorage is positively related to political polarization, even though here the evidence is weaker because of difficulties in measuring polarization.

Suggested Citation

Cukierman, Alex and Edwards, Sebastian and Tabellini, Guido, Seigniorage and Political Instability (December 1989). NBER Working Paper No. w3199, Available at SSRN: https://ssrn.com/abstract=227293

Alex Cukierman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

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Interdisciplinary Center (IDC) Herzliyah ( email )

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HOME PAGE: http://www.tau.ac.il/~alexcuk/

Centre for Economic Policy Research (CEPR)

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Sebastian Edwards

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area ( email )

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National Bureau of Economic Research (NBER)

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Guido Tabellini

Bocconi University - Department of Economics ( email )

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Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

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Italy

Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

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Munich, DE-81679
Germany

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