Public Spending As A Cost Of Financial Repression: Theoretical And Empirical Assessment In The Case Of Algeria

Abstract

Financial repression is considered a fiscal tax granted to the authorities in the form of government revenues. However, it must be admitted that these taxes have a cost. This article deals the public spending as a cost of financial repression. Using the Error Correction Model (ECM) mechanism through Algerian data, we analyse the impact of the inflation tax and the income from financial repression on total public spending. The empirical estimate indicates that the inflation tax has a positive effect on the public spending. While, the effect of the income from financial repression is negative. Based on the results of causality test and the theory of the financial repression, the main conclusion is that the financial repression is more costly in terms of public spending than the benefits that it generate.