Working Paper

Inflation and the Size of Government

Abstract: It is commonly supposed in public and academic discourse that inflation and big government are related. We show that economic theory delivers such a prediction only in special cases. As an empirical matter, inflation is significantly positively related to the size of government mainly when periods of war and peace are compared. We find a weak positive peacetime time series correlation between inflation and the size of government and a negative cross-country correlation of inflation with non-defense spending.

Keywords: Inflation; Government size; Central bank independence;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2001-11

Number: 2002-01

Pages: 44 pages