IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v80y2019icp303-319.html
   My bibliography  Save this article

Role of cash and costs of inflation for different income groups in the U.S

Author

Listed:
  • Kakar, Venoo
  • Daniels, Gerald Eric

Abstract

Due to the adverse effects of the Great Recession, economic inequality has received much attention in the macroeconomic literature. While U.S. monetary policy set by the Federal Reserve does not seek to directly influence economic inequality by operating under the dual mandate, it has indirect consequences on economic inequality as well as important redistributional effects as transaction patterns and cash constraints are not evenly distributed for different income groups. We build a monetary growth model where money is introduced via a Cash-In-Advance (CIA) constraint. Our model successfully generates patterns of income, wealth, and earnings inequality in the U.S. and we use this framework to analyze the redistributional impact of long-run inflation. We observe significant redistributional effects as inflation acts as a regressive tax on consumption; it adversely affects households at the bottom of the income partition and benefits those at the top. This paper contributes to the recent and growing literature on the redistributive effects of monetary policy.

Suggested Citation

  • Kakar, Venoo & Daniels, Gerald Eric, 2019. "Role of cash and costs of inflation for different income groups in the U.S," Economic Modelling, Elsevier, vol. 80(C), pages 303-319.
    • Handle: RePEc:eee:ecmode:v:80:y:2019:i:c:p:303-319
    DOI: 10.1016/j.econmod.2018.11.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999318306886
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2018.11.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Geronikolaou, George & Spyromitros, Eleftherios & Tsintzos, Panagiotis, 2020. "Progressive taxation and human capital as determinants of inflation persistence," Economic Modelling, Elsevier, vol. 88(C), pages 82-97.
    2. Mehdi El Herradi & Jakob Haan & Aurélien Leroy, 2023. "Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 170-194, March.
    3. Mehdi el Herradi & Jakob de Haan & Aurélien Leroy, 2020. "Inflation and the Income Share of the Rich: Evidence for 12 OECD Countries," CESifo Working Paper Series 8203, CESifo.
    4. Davtyan, Karen, 2023. "Unconventional monetary policy and economic inequality," Economic Modelling, Elsevier, vol. 126(C).
    5. Süssmuth, Bernd & Wieschemeyer, Matthias, 2022. "Taxation and the distributional impact of inflation: The U.S. post-war experience," Economic Modelling, Elsevier, vol. 111(C).

    More about this item

    Keywords

    Inflation; Monetary policy; Redistribution; Inequality; Ex-ante heterogeneity; Progressive taxation;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:80:y:2019:i:c:p:303-319. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.