The fiscal gains from, and hence the political incentives for, an increase in the inflation rate of ten percentage points may be substantial: Swedish data from 1994 suggests an annual real flow of 3–4% of GDP, or a capitalized value of nearly 100% of GDP. These gains would have arisen mainly...

This paper demonstrates how time consistency of the Ramsey policy (the optimal fiscal and monetary policy under commitment) can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise...