Calculating the fiscal deficit correctly in the cases of the United States, France and the euro zone

Fiscal deficits are miscalculated: their calculation (as the difference between public spending and the government’s revenue) overlooks two taxes: The inflation tax (the effect of inflation on the real value of central bank money); The effect of inflation on the real value of the public debt. It is not the differential between the nominal interest rate and the nominal growth rate or inflation that matters here , as the nominal interest paid on the public debt is included in the total fiscal deficit. Rather, interest on the public debt should be taken net of the fall in the real value of the public debt due to inflation. The “true” fiscal deficit is therefore the usual total fiscal deficit minus the effect of inflation on the real value of the sum of the monetary base and the public debt. Of course, the usual total fiscal deficit includes debt interest payments, which increase if interest rates follow a rise in inflation. We see huge fiscal gains from inflation in the 1980s and in the first half of the 1990s, and again today. In 2021, they amounted to 3 percentage points of GDP in Europe and more than 6 percentage points of GDP in the United States.