Inflation, real interest tax wedges, and capital formation
AbstractInflation magnifies the distorting effects of taxation when the tax treatment of interest income and expense is not fully indexed to inflation. The distortion involves a real interest tax wedge which is the difference between the real before tax interest rate that influences fully taxed investors and the real after tax interest rate that influences savers. Reducing the real tax wedge by eliminating inflation or indexing would stimulate private saving and non-residential investment, but decrease tax receipts and the tax deductions that subsidize home ownership.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1998-005.
Date of creation: 1998
Date of revision:
Publication status: Published in Federal Reserve Bank of St. Louis Review, January/February 1998, 80(1), pp. 29-36
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steven M. Fazzari & Benjamin Herzon, . "Capital Gains Taxes and Economic Growth, Effects of a Capital Gains Tax Cut on the Investment Behavior of Firms," Economics Public Policy Brief Archive ppb_25, Levy Economics Institute.
- Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
- Martin Feldstein, 1996.
"The Costs and Benefits of Going from Low Inflation to Price Stability,"
NBER Working Papers
5469, National Bureau of Economic Research, Inc.
- Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 123-166 National Bureau of Economic Research, Inc.
- Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, vol. 66(2), pages 193-99, May.
- William G. Dewald, 1986. "Government Deficits in a Generalized Fisherian Credit Market: Theory with an Application to Indexing Interest Taxation (DÃ©ficits publics dans le contexte d'un marchÃ© du crÃ©dit dÃ©crit par u," IMF Staff Papers, Palgrave Macmillan, vol. 33(2), pages 243-275, June.
- Alan J. Auerbach, 1982.
"Taxation, Corporate Financial Policy and the Cost of Capital,"
NBER Working Papers
1026, National Bureau of Economic Research, Inc.
- Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September.
- Michael D. Bordo & William G. Dewald, 2001. "Bond Market Inflation Expectations in Industrial Countries: Historical Comparisons," NBER Working Papers 8582, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).
If references are entirely missing, you can add them using this form.