Deficit spending, money, and inflation: Some international empirical evidence

Are fiscal deficits inflationary?

“…According to previous empirical studies (Giannaros and Kolluri, 1986;Protopapadakis and Siegel, 1987;Barnhart and Darrat, 1988;De Haan and Zelhorst, 1990;Catão and Terrones, 2005;Kwon et al, 2009), the fiscal deficit has a stronger influence on inflation in developing countries than in developed countries. Thus, the deficit-inflation relationship is investigated for different country groups such as OECD and non-OECD countries.…”

“…Furthermore, Giannaros and Kolluri (1986), who utilize data from 10 industrial or developed countries from 1950 to 1981, show that the impact of fiscal deficits on money supply and inflation is insignificant. Protopapadakis and Siegel (1987) examine the debt-money and the debt-inflation connections for 10 major advanced countries during the period of 1952-1987, and note that the association between debt growth and inflation is very weak.…”

“…1 Despite the theoretical view that fiscal deficits are inflationary, empirical studies have yet to provide a strong and statistically significant connection between fiscal deficits and inflation across a broad range of countries and inflation rates (Blanchard and Fischer, 1989;Catão and Terrones, 2005). For example, empirical studies of the United States (Hamburger and Zwick, 1981;Dwyer, 1982;Darrat, 1985;Ahking and Miller, 1985;King and Plosser, 1985), and those of other industrial or developed countries (King and Plosser, 1985;Giannaros and Kolluri, 1986;Protopapadakis and Siegel, 1987; Barnhart and Darrat, 1988) have not yielded conclusive results on the deficit-inflation relationship. Meanwhile, empirical studies of developing countries, such as those of De Haan and Zelhorst (1990), Metin (1998), Loungani and Swagel (2003), and Domaç and Yücel (2005), generally indicate that the inflationary effect of deficit financing is insignificant, but do find a significant causality of fiscal deficits on inflation in high-inflation countries.…”

Budget deficits, money supply and price level in West Africa

“…Giannaros and Kolluri (1986) examine the relationship between government deficits, money growth and inflation for ten industrialized countries during the period 1950 to 1981. The results show that fiscal deficits do not increase the money supply and the inflation rate.…”

Revisit the Budget Deficits and Inflation: Evidence from Time and Frequency Domain Analyses

“…They do not find the connection between inflation and deficits for 12 countries. Moreover, Giannaros and Kolluri [30] test the relationship between government deficits and the money growth or the rate of inflation for majority of 10 industrialized countries (US, Canada, Japan, UK, West Germany, France, Italy, Netherlands, and Belgium) during the period 1950 to 1981. These results show that the fiscal deficits do not increase the money supply and the inflation rate.…”