Seigniorage in developing countries

The importance of the inflation tax (or seigniorage) is analysed in a sample of 42 developing countries. Two widely used concepts of the inflation tax are applied: the ratio of the change in reserve money to nominal GNP and the definition used by the World Bank. Under the first concept, the average inflation tax ranges from 0.6% to almost 9% of GNP for the period 1962-85; under the World Bank definition, it ranges from 0.4% to almost 4% of GNP. The unweighted averages are 2.17% and 1.29%, respectively. During the period 1974-85 seigniorage is generally higher than in the 1962-73 period. Although both concepts of the inflation tax used yield different outcomes, the ranking of the countries is remarkably similar under both definitions. In poor countries the inflation tax is generally lower than in countries with a higher income per capita. In highly indebted countries seigniorage is generally higher than in the other countries. Government spending is also positively correlated with seigniorage.