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Growth and Distributional Effects of Inflation with Progressive Taxation

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  • Seiya Fujisaki

    ()
    (Department of Education, Shinshu University)

  • Kazuo Mino

    ()
    (Institute of Economic Research, Kyoto University)

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 money growth are rather small. In contrast, fiscal distortion caused by progressive taxation yield significant impacts on growth and distribution.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 4 ()
Pages: 3055-3065

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Handle: RePEc:ebl:ecbull:eb-10-00193

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Keywords: Inflation; Progressive Income Tax; Growth; Income Distribution;

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  1. Jha, Sailesh K. & Wang, Ping & Yip, Chong K., 2002. "Dynamics in a transactions-based monetary growth model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(4), pages 611-635, April.
  2. Chen, Shu-Hua & Guo, Jang-Ting, 2008. "Velocity of money, equilibrium (in)determinacy and endogenous growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 30(3), pages 1085-1096, September.
  3. Been-Lon Chen & Mei Hsu & Chia-Hui Lu, 2008. "Inflation and Growth: Impatience and a Qualitative Equivalence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(6), pages 1309-1323, 09.
  4. Guo, Jang-Ting & Lansing, Kevin J., 1998. "Indeterminacy and Stabilization Policy," Journal of Economic Theory, Elsevier, Elsevier, vol. 82(2), pages 481-490, October.
  5. Jones, Larry E. & Manuelli, Rodolfo E., 1995. "Growth and the effects of inflation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(8), pages 1405-1428, November.
  6. Temple, Jonathan, 2000. " Inflation and Growth: Stories Short and Tall," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 14(4), pages 395-426, September.
  7. Mino, Kazuo, 1997. "Long-Run Effects of Monetary Expansion in a Two-Sector Model of Endogenous Growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 19(4), pages 635-655, October.
  8. Meng, Qinglai, 2002. "Monetary policy and multiple equilibria in a cash-in-advance economy," Economics Letters, Elsevier, Elsevier, vol. 74(2), pages 165-170, January.
  9. Sarte, Pierre-Daniel G., 1997. "Progressive taxation and income inequality in dynamic competitive equilibrium," Journal of Public Economics, Elsevier, Elsevier, vol. 66(1), pages 145-171, October.
  10. Marquis, Milton H & Reffett, Kevin L, 1995. "The Inflation Tax in a Convex Model of Equilibrium Growth," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 62(245), pages 109-21, February.
  11. Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1705-1716, December.
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