Banking

Disinflation Against The Environment? An Application To The Trade-Off Between Seigniorage And Deforestation

Date Added: Jan 2011
Format: PDF

The forest still covers an important share of land area in many developing countries and represents an important source of revenue for governments. Another major contribution to government revenues comes from printing money, namely the seignior age. Building on a simple theoretical model where governments target inflation and aim at reducing deforestation while minimising a welfare loss function, the authors exhibit the potential substitution effect between seignior age and deforestation revenues. Regressions run on a panel of developing countries show that there exists a non-negligible substitution effect between seignior age and deforestation revenues, which is, as suggested by the theoretical model, even stronger if the endogenous character of seignior age is taken into account.