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This paper examines the methodological issues in the measurement of fiscal impact. The paper analyzes the effects of inflation on the measurement of fiscal deficits. It highlights that inflation affects government revenue and expenditure in different ways; as a consequence, it generally changes the size of the fiscal deficit. An increase in the rate of expected inflation can lead to quick and dramatic increases in nominal interest expenditure when the domestic public debt is a substantial proportion of GDP.
Publisher: International Monetary Fund