Sailing With No Wind: The Impact of Deflation and Lowflation on Fiscal Aggregates

AuthorNicolas End - Sampawende J.-A. Tapsoba - Gilbert Terrier - Renaud Duplay
Pages1-4
IMFIMF
Volume 15, Number 4 December 2014
www.imf.org/researchbulletin
B U L L E T I N
1
Oil Exporters at the Crossroads:
It Is High Time to Diversify
Reda Cherif and Fuad Hasanov
The prevailing growth model for mo st oil-
exporting countrie s has left them vulnerable
to a sustained decline in oil pr ices and has
resulted in a decline in income per ca pita rela-
tive to the United States. To achieve sustainable
growth, oil expor ters need to create a dynamic
and diversified tradable s sector. The standard
prescription of tackling gover nment failures will not be sufficient. Gover nments
need to address the market failu res stemming from oil expor t revenues and
change the incentive structure of f irms and workers. The experienc e of successful
oil exporters shows th at it takes a long time to diversify. A focu s on competing in
Sailing With No Wind:
The Impact of Deflation and
Lowflation on Fiscal Aggregates
Nicolas End, Sampawende J.-A. Tapsoba, Gilbert Terrier,
and Renaud Duplay
Entrenched low inf lation (“lowflation”) or negative inf lation (deflati on) has
become a source of concern in seve ral advanced economies. Thi s is particularly
true for fiscal pol icymakers. With low flation (say positive inflation below 2 per-
cent) or deflation, d ownward rigidities in both tax brackets and expenditures
make fiscal polic y more challenging. Def lation is rare in modern history. This arti-
cle uses both simulations a nd a dataset panel covering 150 years and 18 advanced
economies to uncover its impact on p ublic finances. Th e evidence is in line with
the intuition of defl ation having a negative impact on debt ratios; the impact on
primary balance s is, however, more difficult to assess. Whil e the historical record
In This Issue
1 Sa iling With No Wind:
The Impact of Deation
and Lowation on
Fiscal Aggregates
1 O il Exporters at the
Crossroads: It Is High
Time to Diversify
8 Me eting the Nobel Giants
10 Staff Discussion Notes
11 Q&A: Seven Questions
on Financial Frictions
and the Sources of
Business Cycle
13 IMF Working Pap ers
16 Recomme nded Readings
from IMF Publications
17 IMF Economic Review
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