PRIVATIZATION AND CHANGES IN WELFARE COSTS OF INFLATION - THE CASE OFENTEL ARGENTINA

In a country with permanent deficit-driven inflation problems, the pro ceeds from privatization may translate into potential reductions of th e seigniorage needed to finance a given a level of government expendit ure. The changes in welfare costs of inflation brought about by divest iture are quantified in a monetary model. In an Argentine case study, these changes were found to be small, both in terms of GDP and as a pe rcentage of seigniorage revenue. Within the model, this is mainly expl ained by the low values encountered for the elasticities of money dema nd with respect to expected inflation, and by the exclusion of conside rations about unanticipated inflation.