Year: 1994
Author: Banaian, King, McClure, J. Harold, Willett, Thomas D.
Credit and Capital Markets – Kredit und Kapital, Vol. 27 (1994), Iss. 1 : pp. 30–42
Abstract
The traditional calculation of the optimal inflation tax yields optimal inflation rates between 30 and 200 percent. This ignores any output costs generated by higher anticipated inflation. We argue that the literature since Friedman’s Nobel lecture supports the hypothesis that higher inflation lowers growth. This Friedman effect lowers both the optimal rate and the rate that maximizes the government’s total revenue from inflation and income taxation. Simple calculations demonstrate that if a 10% anticipated inflation reduces growth by 1% per annum, the optimal rate of inflation in industrialized economies is zero unless the marginal cost of the income tax is very high. The revenue motive, while reduced by the Friedman effect, remains relatively strong.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.27.1.30
Credit and Capital Markets – Kredit und Kapital, Vol. 27 (1994), Iss. 1 : pp. 30–42
Published online: 1994-01
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 13
Author Details
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A FISCAL THEORY OF GOVERNMENT'S ROLE IN MONEY
Selgin, George
White, Lawrence H.
Economic Inquiry, Vol. 37 (1999), Iss. 1 P.154
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