ABSTRACT
The last two chapters have presented some evidence on the dimensions of the problem under consideration and its proximate causes. This chapter and the subsequent ones are devoted to some of the implications of the budget deficits and the public debt. The issue to be dealt with in this chapter relates to that of the monetization of budget deficits. Monetization of budget deficits provides the governments with a source of revenue. This process of creating high-powered money, called seigniorage, is one of the most important and controversial aspects of deficit financing. This chapter considers four aspects of the issue. First, it provides alternate estimates of seigniorage and examines their importance as a source of revenue. Second, it considers the extent to which these revenues are accounted for by the treasury. Third, it provides estimates of the monetization of government debt. And fourth, it provides some quantification of the effects of budget deficits on seigniorage for the countries in our sample.
