Debt, Cash Flow and Inflation Incentives: A Swedish Example

CEPR Discussion Paper Series No. 1488

Posted: 11 Mar 1997

See all articles by Torsten Persson

Torsten Persson

Stockholm University - Institute for International Economic Studies (IIES); London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Mats Persson

Stockholm University; CESifo (Center for Economic Studies and Ifo Institute)

Lars E. O. Svensson

Stockholm School of Economics; Stockholm University - Institute for International Economic Studies (IIES); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1996

Abstract

The fiscal gains from, and hence the political incentives for, an increase in the inflation rate of ten percentage points may be substantial: Swedish data from 1994 suggests an annual real flow of 3-4% of GDP, or a capitalized value of nearly 100% of GDP. These gains would have arisen mainly from the nominalistic features of the tax and transfer systems rather than from the traditional sources: seignorageand real depreciation of public debt. The welfare costs of such an inflation increase would have been even larger, however, and would thus have reduced net welfare. Possible institutional reforms, aimed at making the political costs of inflation more equal to the social costs, are presented and discussed.

JEL Classification: E31, E62, H62, H63

Suggested Citation

Persson, Torsten and Persson, Mats and Svensson, Lars E.O., Debt, Cash Flow and Inflation Incentives: A Swedish Example (September 1996). CEPR Discussion Paper Series No. 1488. Available at SSRN: https://ssrn.com/abstract=3829

Torsten Persson (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 8 163066 (Phone)
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London School of Economics & Political Science (LSE)

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Mats Persson

Stockholm University ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://www.cesifo.de

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Lars E.O. Svensson

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

HOME PAGE: http://larseosvensson.se

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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