Uma nota sobre inflação, déficit e a sustentabilidade

This note discusses the conditions for a sustainable fiscal policy defined as one that will result in a stable debt/income ratio. It is shown that the usually evoked condition for sustainability, that the real rate of interest be smaller than the rate of the income growth, is not a sufficient one when the government has access to revenue from seignorage collection. The role played by the market and expectations, and the reasons for the difficulties in establishing an empirical relationship between budget deficits and inflation reported in the literature are discussed. It is argued that the way expectations about fiscal consolidation are formed, and the effects of inflation on the government budget might explain the absence of a systematic relationship between deficits and inflation. Yet, despite the empirical results, the reduction or virtual elimination of budget deficits may be considered a stylized fact about successful stabilization programs.