Growth and Distributional Effects of Inflation with Progressive Taxation

Seiya, Fujisaki and Kazuo, Mino (2010): Growth and Distributional Effects of Inflation with Progressive Taxation.

Abstract

This paper examines the growth and income distribution effects of inflation in a growing economy with heterogeneous households and progressive income taxation. Assuming that the cash-in-advance constraint applies to investment as well as to consumption spending, we show that a higher growth of monetary supply yields a negative impact on growth and an ambiguous effect on income distribution. Numerical example with plausible parameter values, however, demonstrate that those long-run effects of inflation tax are rather small. In contrast, fiscal distortion caused by progressive taxation yield significant impacts on growth and distribution

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Tax, Progressive Income Tax, Growth, Income Distribution
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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