Cutting down on inefficient public expenditure and central bank independence

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This paper shows that inefficient public expenditure can be institutionally curtailed by an independent central bank in the international economy. We conclude that an independent central bank promotes budgetary efficiency. An advantage of our analysis from the angle of public economics is to treat the relation between central bank independence and fiscal policy (public goods provision). When the central bank is not independent of the fiscal authority, that is, when fiscal policy is determined before monetary policy, the public good is oversupplied. When the central bank is independent (monetary policy is predetermined), however, the expenditure level is efficient. We alsoshow that it is important to cooperate to make each central bank independent internationally.


  • Keio economic studies

    Keio economic studies 43(1), 1-19, 2006

    Keio Economic Society, Keio University


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