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Fiscal Seigniorage "Laffer-curve effect" on Central Bank Autonomy in India

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  • Chakraborty, Lekha

    (National Institute of Public Finance and Policy)

Abstract

It is often emphasised that seigniorage financing of public sector deficits is technically a "free lunch" if the economy has not attained the full employment levels. However, conservative macroeconomic policies in many emerging and developing economies, especially in the last two decades, have moved away from seigniorage financing to debt financing of deficits to give greater autonomy to the central banks. Against this backdrop, the paper analyses the fiscal and monetary policy co-ordination in India by constructing a fiscal seigniorage Laffer curve. If such a curve exists, it is possible to derive a seigniorage-maximizing inflation rate to estimate the optimal level of seigniorage financing of deficits. The illustrative estimates from the Indian data using error correction mechanism models confirm the possibility of a fiscal seigniorage Laffer curve.

Suggested Citation

  • Chakraborty, Lekha, 2015. "Fiscal Seigniorage "Laffer-curve effect" on Central Bank Autonomy in India," Working Papers 15/156, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:15/156
    Note: Working Paper 156, 2015
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    Cited by:

    1. Aggarwal, Bhavya & Chakraborty, Lekha, 2015. "Towards 2030 UN Agenda on Sustainable Development Goals: Technical Challenges in Measuring Gender Inequality in Asia Pacific," Working Papers 15/157, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Fiscal-Monetary Policy Co-ordination ; Seigniorage ; Fiscal Deficits ; Error Correction Mechanism ; Seigniorage Laffer Curve;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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