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how inflation helped the government meet the goal with the IMF

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According to a report, inflation helped the Government achieve the deficit target

The report stated that the data shows that “inflation played a key role in reducing the fiscal deficit.”

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The report warned that “this experience shows that it is of little use to show reductions in the fiscal deficit by stoking inflation so that public revenues inflate and public spending is delayed.”

The entity headed by the economist Jorge Colina points out that “a very illustrative and relevant example -because it is the main component of national public spending- is the loss of real value that pension funds have been suffering as a result of inflation.”

“In a context of accelerating inflation while tax revenues rise at a rate similar to that of prices, most public spending has been updated below inflation,” the study said.

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That is why it is “contradictory to expect inflation to drop when it is being used to reduce the fiscal deficit,” argues the report, which added that “if inflation fell, the liquefaction of public spending would decrease and the fiscal imbalance would increase.”

IDESA indicated that “Appealing to inflation as a fiscal adjustment instrument is not new and has always ended with frustrating results.”

Inflation accelerated to 53%, tax revenues grew to 48% and primary public spending grew to 37%,” said the work.

The closest example was the Cambiemos government, which at the end of its term also used it for the zero deficit goal.

“What people are concerned about is not the fiscal deficit but inflation. You have to lower the deficit to lower inflation, not raise inflation to lower the deficit,” the report said.

Source: Ambito

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