The fiscal theory of the price level is the idea that government fiscal policy, including debt and taxes present and future, is the primary determinant of the price level or inflation as opposed to the quantity theory of money.
[4] Central banks, the theory argues, cannot stop inflation by themselves if there is not a credible effort to balance the books.
[5] Part of this stems from the argument that extra spending on interest payments on government debt is in and of itself inflationary.
Thus, fiscal discipline, meaning a balanced budget over the course of the economic cycle is important to control inflation.
Thomas Sargent and Neil Wallace wrote a 1981 paper arguing that unsustainable deficits eventually lead to the government having to print money to cover its debts leading to inflation that even higher interest rates would not be able to fix.