DP381 Seigniorage and Political Stabiliity

Author(s): Alex Cukierman, Sebastian Edwards, Guido Tabellini
Publication Date: March 1990
Keyword(s): Government Revenue, Political Systems, Seigniorage, Tax Reform
JEL(s): 053, 123, 321, 323
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=381

The importance of seigniorage relative to other sources of government revenue differs markedly across countries. The main theoretical implication of this paper is that countries with more unstable and polarized political systems rely more heavily on seigniorage. This result is obtained within the context of a political model of tax reform. The model implies that the more unstable and polarized the political system, the more inefficient is the equilibrium tax structure (in the sense that tax collection is more costly to administer), and the higher therefore the reliance on seigniorage. This prediction of the model is tested on cross-section data for 79 countries.