CREDIT 20/02: When are fiscal deficits inflationary in low-income countries?

Abstract

Previous research has found that the relationship between fiscal deficits and inflation is conditional on income levels: deficits tend to be inflationary in developing countries but not in advanced economies. We show that within low-income countries (LICs) the relationship is again conditional: only when relatively poor institutions fail to hold governments accountable to the general public are fiscal deficits inflationary in LICs.

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Authors

Michael Bleaney, Atsuyoshi Morozumi and Zakari Mumuni

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