Prague Economic Papers 2005, 14(1):3-16 | DOI: 10.18267/j.pep.249

Fiscal Deficits and Inflation in the Transition Countries

Vratislav Izák
University of Economics, 4, W. Churchill Sq., CZ - 130 67 Prague 3 (e-mail: izak@vse.cz).

The fiscal deficits in the majority of transition countries continue to deteriorate and pose risks for the sustainability of public finances in the longer time horizon. Due to short time span and data limitation (1993 - 2003) I concentrate on the short-run dynamics using fixed-effect model with panel data. I found a very small effects of fiscal deficits on inflation for the group of Visegrad countries (the Czech Republic, Hungary, Poland, Slovakia) with slightly better results after the exclusion of Poland. The perspective of adopting the euro in the horizon of several years has prevented until now the use of surprise inflation to reduce the real burden of servicing the increasing public debt. In the periods of social conflicts which are likely to characterize times of delayed fiscal reforms the temptation to resort to seignorage may become more stronger than nowadays.

Keywords: transition countries, inflation, fiscal deficits
JEL classification: E31, E60, E63

Published: January 1, 2005  Show citation

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Izák, V. (2005). Fiscal Deficits and Inflation in the Transition Countries. Prague Economic Papers, 14(1), 3-16. doi: 10.18267/j.pep.249
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