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Long-Run Impacts of Inflation Tax in the Presence of Maintenance Expenditures

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Author Info

  • Seiya Fujisaki

    (Graduate School of Economics, Osaka University)

  • Kazuo Mino

    (Institute of Economic Research, Kyoto University)

Abstract

This paper examines the long-run impact of inflation tax in the context of a generalized Ak growth model in which the rate of capital depreciation is endogenously determined. We assume that the rate of capital depreciation positively depends on capital utilization rate and negatively depends on maintenance expenditures. Money is introduced via a cash-in-advance constraint that may apply to the maintenance expenditures as well as to consumption and investment spendings. We find that the long-run effects of inflation tax are more complex than those obtained in the monetary Ak growth model with a fixed capital depreciation rate. In particular, the relation between inflation and growth is highly sensitive to the specification of the capital depreciation technology as well as to the forms of cash-in-advance constraints.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 677.

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Length: 11pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:kyo:wpaper:677

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Keywords: maintenance expenditures; endogenous growth; inflation tax; cash-in-advance constraints;

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