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Inflationary financing of public investment and economic growth

✍ Scribed by Pedro Cavalcanti Ferreira

Publisher
Elsevier Science
Year
1999
Tongue
English
Weight
189 KB
Volume
23
Category
Article
ISSN
0165-1889

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✦ Synopsis

A theoretical model is constructed in order to explain particular historical experiences in which inflation acceleration apparently helped to spur a period of economic growth. Government financed expenditures affect positively the productivity growth in this model so that the distortionary effect of inflation tax is compensated by the productive effect of public expenditures. We show that for some interval of money creation rates there is an equilibrium where money is valued and where steady state physical capital grows with inflation. It is also shown that zero inflation and growth maximization are never the optimal policies.

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