The effect of corruption, seigniorage and borrowing on inflation

Abstract

Purpose Governments may finance its expenditures through multiple resources; however, seigniorage and borrowing are commonly used. The authors think that in the presence of corruption, the use of public finance may result in inflationary effect that leads to higher level of inflation, which in turn affects the whole economy. Design/methodology/approach This paper investigates if the variation in corruption levels jointly with public finance means, seigniorage and borrowing, accounts for the variation in the level of inflation. This paper uses panel data of 72 countries through the period 1995-2011. Findings The author find that corruption jointly with public finance means, seigniorage and borrowing, increase the level of inflation. This finding can address the misuse of these public finance means where corruption is prevalent. Originality/value This paper captures the joint effect of corruption with two different means of public finance, seigniorage and borrowing, on the level of inflation within 72 countries through 1995-2011.