The impact of inflation on budgetary discipline

Joshua Aizenman, Ricardo Hausmann

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


This paper views the budgetary process as a limited contingencies contract between the Treasury and the ministers, allowing a minister to ask for budget revisions. Upon costly verification by the Treasury, the minister may obtain extra funds. For significant state verification costs and for low volatility, the contract is non-contingent. For volatility significant enough, the contract becomes state-contingent - it reduces the initial allocation, and reduces the threshold associated with budgetary revisions. In volatile economics, the projected revenue understates the realized budget, and the average budget error is positive. The model's predictions are confirmed using data from Latin America. (C) 2000 Elsevier Science B.V. All rights reserved.

Original languageEnglish
Pages (from-to)425-449
Number of pages25
JournalJournal of Development Economics
Issue number2
StatePublished - 1 Dec 2000
Externally publishedYes


  • Budget revisions
  • Inflation
  • Volatility

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics


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