Finance and Economics Discussion Series: Inflation and the Size of Government - Paperback

by Song Han (Author), Casey B. Mulligan (Author), United States Federal Reserve Board (Created by)

It is commonly supposed in public and academic discourse that inflation and big government are related. We show that economic theory delivers such a prediction only in special cases. As an empirical matter, inflation is significantly positively related to the size of government mainly when periods of war and peace are compared. We find a weak positive peacetime time series correlation between inflation and the size of government and a negative cross-country correlation of inflation with non-defense spending.