Government Budget Deficit and Inflationary Process in Ethiopia
No Thumbnail Available
Date
1998-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
The main objective of the study is to examine the causal relation ship between the budget
deficit, money supply and inflation in Ethiopia using the Aghevli and Khan (1978) model using
Ethiopian data obtained from Ministry of Finance, Ministry of Economic Development and
Co-operation and National Bank of Ethiopia.
The main findings of the study are:
The existence of lag structure in the government budgetary mechanism caused a two
way causation between money supply and inflation.
The monetarist paradigm of sustained inflation resulting from budgetary deficit
financing by money creation has been empirically confirmed. In the long-run supply
factors have been found to have a significant influence in the determination of inflation.
Due to the effect of government borrowing and external influence, the Central Bank is
unable to conduct an independent monetary policy
The policy implication of the result of the study is that without implementing effective fiscal
policy, it is difficult to realize macroeconomic stability and economic development. This
includes, among others, eliminating budget deficit, reducing time lags in tax collection,
strengthening fiscal discipline and accountability in the use of public fund. Fiscal prudence and
effectiveness are also indicated in improved tax performance and efficiency in tax
administration. It is also necessary to reform the National Bank of Ethiopia and its operations
so that it is empowered to exercise independent monetary policy.
Description
Keywords
Deficit and Inflationary Process in Ethiopia, Government Budget