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Inflationary bias and state owned financial institutions

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  • Novaes, Walter
  • Werlang, Sérgio Ribeiro da Costa

Abstract

This article explains why the existence of state owned financial institutions makes it more difficult for a country to balance its budget. We show that states can use their financiaI institutions to transfer their deficits to the federal govemment. As a result, there is a bias towards Iarge deficits and high inflation rates. Our model also predicts that state owned financiaI institutions should underperform the market, mainly because they concentrate their portfolios on non-performing loans to their own shareholders, that is, the states. Brazil and Argentina are two countries with a history of high inflation that confirm our predictions .

Suggested Citation

  • Novaes, Walter & Werlang, Sérgio Ribeiro da Costa, 1994. "Inflationary bias and state owned financial institutions," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 242, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:242
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    References listed on IDEAS

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    1. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 567-586.
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    Cited by:

    1. Fernandez, Brena Paula Magno & Silveira, Antonio Maria da, 1994. "The economist Machiavelli," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 250, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    2. Cardoso, Renato Fragelli, 1997. "Entrepreneurial risk and labor's share in output," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 51(2), April.
    3. Ferreira, Pedro Cavalcanti, 1997. "A note on growth, welfare and public policy," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 298, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Júnior, Antonio Marcos Duarte & Werlang, Sérgio Ribeiro da Costa, 1996. "A Model to Estimate the Us Term Structure of Interest Rates," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 16(1), November.
    5. Boudriga, Abdelkader & Boulila, Neila & Jellouli, Sana, 2009. "Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?," MPRA Paper 18068, University Library of Munich, Germany.
    6. Us, Vuslat, 2017. "Dynamics of non-performing loans in the Turkish banking sector by an ownership breakdown: The impact of the global crisis," Finance Research Letters, Elsevier, vol. 20(C), pages 109-117.
    7. Ferreira, Pedro Cavalcanti, 1995. "Welfare and fiscal policy with public goods and infrastructure," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 264, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    8. Ohana, Eduardo Felipe, 1997. "The Brazilian 1994 stabilization plan: an analytical view," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 307, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    9. Cysne, Rubens Penha & Costa, Sergio Gustavo Silveira da, 1997. "Effects of the real plan of the Brazilian banking system," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 304, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    10. Ferreira, Pedro Cavalcanti, 1997. "Infrastructure privatization in a neoclassical economy : macroeconomic impact and welfare computation," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 297, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    11. Ferreira, Pedro Cavalcanti, 1996. "Sustained growth, government expenditure and inflation," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 278, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    12. Flôres Junior, Renato Galvão & Ginsburgh, Victor, 1996. "Dynamic hedonic regressions: computation and properties," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 275, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).

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