Abstract
The aim of the article is to present the condition of the main elements of public finances: public finance deficit (budget deficit), public debt (state treasury debt) and public expenditure (budget expenditure) in Poland in 2011-2017 and on the basis of the described theoretical dependencies to determine their impact on the level of inflation during the period considered. The following methods were used in the research: analysis and logical construction and statistical methods.
 It was found that the state of public finances did not cause inflationary pressure in the analysed period. Inflation remained at a low level, with a tendency to transform into small deflation in some years. However, the abrupt increase in public spending in 2017 could be, according to the theory of economics, responsible (or partly responsible) for the increase in inflation in 2017. Maintaining a high rate of public expenditure growth may stimulate inflation in subsequent periods.
Highlights
Attention is drawn to the connections between the deficit of the public finance sector, public debt, public expenditure and the level of inflation
In 2017, public revenues increased by 10.6%, which meant that despite high expenditure growth, the public finance deficit was lower by 69.3% than the previous year’s deficit, which in turn showed the lowest increase during the period considered in relation to the previous year
The analysis conducted in the previous section indicates that in the audited period the public finance deficit posed no threat to the implementation of inflation policy in the band of the adopted inflation target
Summary
Attention is drawn to the connections between the deficit of the public finance sector (budget deficit), public debt (debt of the state treasury), public expenditure (budget expenditure) and the level of inflation. Deficit financing is usually neutral for the level of inflation through loans taken by the state treasury on the domestic financial market: in commercial banks, business entities, households, through the issue of treasury securities, without increasing the money supply. This means, the occurrence of a push effect, i.e. absorption by the budget of private sector financial surpluses that could be more effectively used to finance investment projects. Financing the deficit with domestic debt can, cause monetization if the central bank conducts accommodative (expansionary) monetary policy to meet the increased demand of the economy for money and to maintain a certain level of interest rates (Rosati, 2017). With a constant increase in public expenditures could a steady increase in prices occur
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