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Inflation and Welfare: Comment on Robert Lucas

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Hans-Werner Sinn

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Abstract

The paper argues that Lucas overestimates the Friedman-Bailey type of welfare cost of inflation and neglects other important welfare effects. With an alternative interpretation of the non-observability of low interest rates than the one Lucas gave and the introduction of taxes that reduce the opportunity cost of money holding, the welfare cost shrinks to one third of Lucas' estimate. The neglected welfare effects of inflation include an adverse Baumol-Tobin effect on growth and international capital movements, historical cost accounting for tax purposes, uncertainty about the price level and the relationship between inflation, relative prices and structural change.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6979.

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Date of creation: Feb 1999
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Handle: RePEc:nbr:nberwo:6979

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  16. Jay Pil Choi, 1998. "Tying and Innovation: A Dynamic Analysis of Tying Arrangements," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  20. Jay Pil Choi & Marcel Thum, 1998. "The Economics of Repeated Extortion," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  21. Hans-Werner Sinn, 1997. "Deutschland im Steuerwettbewerb (Germany Faces Tax Competition)," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  25. Apps, Patricia F. & Rees, Ray, 1997. "The Optimal Taxation of Couples," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
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  28. Erkki Koskela & Ronnie Schoeb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  29. Schob, Ronnie & Wildasin, David E., 2007. "Economic integration and labor market institutions: Worker mobility, earnings risk, and contract structure," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 141-164, March. [Downloadable!] (restricted)
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  30. David F. Bradford, 1997. "Fixing Capital Gains: Symmetry, Consistency and Correctness in the Taxation of Financial Instruments," NBER Working Papers 5754, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  33. Robinson, James A., 1999. "When is a State Predatory?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
  34. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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  42. Asheim, G.B., 1998. "Green National Accounting: Why and How?," Memorandum 08/1998, Oslo University, Department of Economics.
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  47. Sandmo, A., 1997. "Redistribution and the marginal Cost of Public Funds," Papers 8/97, Norwegian School of Economics and Business Administration-.
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Cited by:
(explanations, 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.)

  1. Sinn, Hans-Werner, 1999. "Inflation and Welfare: Comment on Robert Lucas," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Tsyplakov Alexander, 2001. "Does Lower Inflation Imply Lower Price Uncertainty?," EERC Working Paper Series 2k-06e, EERC Research Network, Russia and CIS. [Downloadable!]
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