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Long-Run Impacts of Inflation Tax with Endogenous Capital Depreciation

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  • Fujisaki, Seiya
  • Mino, Kazuo

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. It is assumed that the rate of capital depreciation positively depends on capital utilization rate and negatively depends on maintenance spending. Money is introduced via a cash in advance constraint that may apply to the maintenance expenditure as well as to consumption and investment spending. 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 specifications of the capital depreciation technology as well as to the forms of cash-in-advance constraint.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16657.

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Date of creation: 13 Jul 2009
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Handle: RePEc:pra:mprapa:16657

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Keywords: cash-in-advance constraint; AK growth model; endogenous capital depreciation; maintenance expenditures;

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References

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  1. Jang-Ting Guo & Shu-Hua Chen, 2008. "On the growth and velocity effects of money," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-7.
  2. Jang-Ting Guo & Kevin J. Lansing, 2007. "Maintenance expenditures and indeterminacy under increasing returns to scale," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 147-158.
  3. J. Aznar-Marquez & J.R. Ruiz-Tamarit, 2001. "Endogenous Growth, Capital Utilization and Depreciation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001037, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. repec:ebl:ecbull:v:5:y:2008:i:13:p:1-7 is not listed on IDEAS
  5. Omar Licandro & Luis A. Puch & J. Ramón Ruiz-Tamarit, . "Optimal Growth under Endogenous Depreciation, Capital Utilization and Maintenance Costs," Working Papers 2000-23, FEDEA.
  6. Jun-ichi Itaya & Kazuo Mino, 2005. "Technology, Preference Structure, and the Growth Effect of Money Supply," Discussion Papers in Economics and Business 05-35, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  7. Fujisaki, Seiya & Mino, Kazuo, 2009. "Long-Run Impacts of Inflation Tax in the Presence of Multiple Capital Goods," MPRA Paper 16964, University Library of Munich, Germany.
  8. Sailesh K. Jha & Ping Wang & Chong K.Yip, 2000. "Dynamics in a Transactions-Based Monetary Growth Model," Vanderbilt University Department of Economics Working Papers 0005, Vanderbilt University Department of Economics.
  9. Chen, Shu-Hua & Guo, Jang-Ting, 2008. "Velocity of money, equilibrium (in)determinacy and endogenous growth," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1085-1096, September.
  10. Omar LICANDRO & Luis A. PUCH, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annales d'Economie et de Statistique, ENSAE, issue 58, pages 143-164.
  11. repec:ebl:ecbull:v:5:y:2007:i:11:p:1-7 is not listed on IDEAS
  12. repec:ebl:ecbull:v:5:y:2004:i:2:p:1-7 is not listed on IDEAS
  13. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
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Cited by:
  1. Gaowang Wang & Heng-fu Zou, 2010. "Multiple Equilibria and Indeterminacy in an Optimal Growth Model with Endogenous Capital Depreciation," CEMA Working Papers 392, China Economics and Management Academy, Central University of Finance and Economics.

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