By treating policy makers as machines that minimize the excess burden of all forms of taxation, traditional economic theory has failed to fully explain the differences in the use of seigniorage across countries. These differences may exist because of crucial political constraints that affect policy makers’ decisions. A political economy literature has been developed to address this issue. However, most of the relevant studies are only theoretical in character and are based solely on developed countries. This chapter incorporates political constraints to explain the use of seigniorage. In particular, it uses political capacity as a proxy for government strength to explain the tendency of policy makers to use seigniorage to finance large fiscal deficits and consequently inflate the economy.