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This study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank. The author derives the sequential rational expectation equilibrium, and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax Laffer curve. The analysis is interpreted for a country consisting of several states or provinces, where the centralized government system is weak. Similar results apply to the case of competing ministers in an economy where the central bank is weak. Copyright 1992 by Ohio State University Press.
Joshua Aizenman (Sat,) studied this question.