The last time inflation and public finances were intensely discussed as a joint topic of economic research and policy analysis dates back to half a century ago. With the widespread rise in inflation since mid-2021, a new generation of policymakers rediscovered in practice the powerful interactions between inflation and public finances. As part of a thematic issue Inflation and public finances in the 2020s, the journal Public Sector Economics organised a virtual presentation of two papers on 15 February 2024, moderated by the Editor of this issue Dubravko Mihaljek (Bank for International Settlements, Basel, Switzerland).
Orsetta Causa, Emilia Soldani, Nhung Luu and Chiara Soriolo analyse in their article the distributional effects of rising inflation on households in OECD economies. Emilia Soldani (OECD, Paris, France) noted in her presentation that declines in household purchasing power, mainly due to rising energy prices, ranged from 3% in Japan to 18% in Czechia between August 2021 and August 2022. Lower-income and rural households generally experienced sharper declines in purchasing power. To offset these asymmetric distributional effects of inflation, the author proposed well-targeted income and price support measures, which can at the same time provide incentives to households to save energy and save resources for the budget.
Julie Ann Q. Basconcillo (Universitas Airlangga in Surabaya, East Java, Indonesia), in her article and the presentation, noted that while fiscal expansions in Indonesia may not have affect inflation as much as feared, they did not affect private consumption either. The main effect of fiscal expansions since the mid-2010s may thus have been a deterioration in public finances. In particular, the author presented evidence that transfers to households had led to a persistent rise in debt-to-GDP ratio without stimulating private consumption at all. The fiscal and monetary authorities would thus be well advised to evaluate the composition of public expenditure when adjusting their countercyclical policy settings. A recording of Julie's presentation is also available.