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Deflation and Public Finances

Evidence from the Historical Records

By: Mr.Nicolas End,Mr.Sampawende J.-A. Tapsoba,Mr.G. Terrier,Renaud Duplay

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Deflation and Public Finances

Evidence from the Historical Records

By: Mr.Nicolas End,Mr.Sampawende J.-A. Tapsoba,Mr.G. Terrier,Renaud Duplay

This paper examines the impact of deflation on fiscal aggregates. With deflation relatively rare in modern history, it relies mostly on the historical records, using a dataset panel covering 150 years and 21 advanced economies. Empirical evidence shows that deflation affects public finances mostly through increases in public debt ratios, reflecting a worsening in interest rate–growth differentials. On average, a mild rate of deflation increases public debt ratios by almost 2 percent of GDP a year, this impact being larger during recessionary deflations. Using a simulation model that accounts for composition effects and price expectations, we also find that, for European countries, a 2 percentage point deflationary shock in both 2015 and 2016 would lead to a deterioration in the primary balance of as much as 1 percent of GDP by 2019.

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Page Count

41

Publisher

International Monetary Fund

Published Date

ISBN 10

1513539698

ISBN 13

9781513539690

Deflation and Public Finances

Evidence from the Historical Records

By: Mr.Nicolas End,Mr.Sampawende J.-A. Tapsoba,Mr.G. Terrier,Renaud Duplay

Write a review Read reviews Take a Quiz Solve Book Puzzle

Deflation and Public Finances

Evidence from the Historical Records

By: Mr.Nicolas End,Mr.Sampawende J.-A. Tapsoba,Mr.G. Terrier,Renaud Duplay

This paper examines the impact of deflation on fiscal aggregates. With deflation relatively rare in modern history, it relies mostly on the historical records, using a dataset panel covering 150 years and 21 advanced economies. Empirical evidence shows that deflation affects public finances mostly through increases in public debt ratios, reflecting a worsening in interest rate–growth differentials. On average, a mild rate of deflation increases public debt ratios by almost 2 percent of GDP a year, this impact being larger during recessionary deflations. Using a simulation model that accounts for composition effects and price expectations, we also find that, for European countries, a 2 percentage point deflationary shock in both 2015 and 2016 would lead to a deterioration in the primary balance of as much as 1 percent of GDP by 2019.

Average ratings

N/A

5

0%

4

0%

3

0%

2

0%

1

0%

Solve jigsaw puzzle

Age

Page Count

41

Publisher

International Monetary Fund

Published Date

ISBN 10

1513528246

ISBN 13

9781513528243