Fiscal Governance in Response to Inflationary Shocks in Developed and Developing Countries

Abstract

In this article, we demonstrate through the analysis of a sample composed of 6 developed countries and 7 developing countries that the consequences of fiscal governance in the face of inflationary shocks differ depending on the degree of development. Indeed, the panel results over the period 1990 to 2023 confirm that tax revenues adjust to the increase in inflation in developed countries. However, the effect of this adjustment remains weak compared to the rate of tax pressure recorded in these countries. For developing countries, no effect of inflation on tax revenues has been recorded. Consequently, these results confirm that the non-indexation of tax revenues to inflation further aggravates the phenomenon of structural budget deficit from which developing countries suffer.