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The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices

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  • Heer, Burkhard
  • Maußner, Alfred

Abstract

Inflation is often associated with a loss for the poor in the medium and long term. We study the short-run redistributive effects of unanticipated inflation in a dynamic optimizing sticky price model of the business cycle. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels of the effect of inflation on income distribution: (1) factor prices, (2) “bracket creep,” and (3) sticky pensions. Unanticipated inflation that is caused by monetary expansion is found to reduce income inequality. In particular, an increase of the money growth rate by one standard deviation results in a 1% drop of the Gini coefficient of disposable income if extra tax revenues are transferred lump-sum to the households.

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  • Heer, Burkhard & Maußner, Alfred, 2012. "The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 16(02), pages 278-308, April.
  • Handle: RePEc:cup:macdyn:v:16:y:2012:i:02:p:278-308_00
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    Cited by:

    1. Chang, Wen-ya & Chen, Ying-an & Chang, Juin-jen, 2013. "Growth and welfare effects of monetary policy with endogenous fertility," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 117-130.
    2. Heer, Burkhard & Süssmuth, Bernd, 2013. "Tax bracket creep and its effects on income distribution," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 393-408.
    3. Yann Algan & Olivier Allais & Edouard Challe & Xavier Ragot, 2012. "Monetary Shocks Under Incomplete Markets," Sciences Po publications info:hdl:2441/1j0a1p4ifa9, Sciences Po.
    4. Olivier Allais & Yann Algan & Edouard Challe & Xavier Ragot, 2015. "The Welfare Cost of Inflation Risk Under Imperfect Insurance," Working Papers hal-01169656, HAL.
    5. Larin, Benjamin, 2016. "Bubble-driven business cycles," Working Papers 143, University of Leipzig, Faculty of Economics and Management Science.
    6. Burkhard Heer, 2013. "A note on the cyclical behaviour of the income distribution," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2013(1), pages 1-7.
    7. repec:prg:jnlpep:v:2017:y:2017:i:6:id:630:p:633-645 is not listed on IDEAS
    8. repec:gam:jecomi:v:6:y:2018:i:2:p:21-:d:138573 is not listed on IDEAS
    9. Yaz Terajima & Jose-Victor Rios-Rull & Césaire Meh & Shutao Cao, 2013. "Demand for Liquidity and Welfare Cost of Inflation by Cohort and Age of Households," 2013 Meeting Papers 569, Society for Economic Dynamics.
    10. repec:prg:jnlpep:v:preprint:id:630:p:1-13 is not listed on IDEAS
    11. Ragot, Xavier, 2014. "The case for a financial approach to money demand," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 94-107.
    12. Yann Algan & Xavier Ragot, 2010. "Monetary policy with Heterogeneous Agents and Borrowing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 295-316, April.
    13. Hideki Konishi & Kozo Ueda, 2013. "Aging and Deflation from a Fiscal Perspective," IMES Discussion Paper Series 13-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
    14. Carlo A. Favero & Arie E. Gozluklu & Haoxi Yang, 2016. "Demographics and the Behavior of Interest Rates," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(4), pages 732-776, November.
    15. Masaya Yasuoka, 2018. "Money and Pay-As-You-Go Pension," Economies, MDPI, Open Access Journal, vol. 6(2), pages 1-15, March.
    16. Fabrizio Mattesini & Lorenza Rossi, 2012. "Monetary Policy and Automatic Stabilizers: The Role of Progressive Taxation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 825-862, August.
    17. Xavier Ragot, 2008. "The case for a financial approach to money demand," Working Papers halshs-00586066, HAL.
    18. Burkhard Heer & Alfred Maußner, 2009. "Computation of business-cycle models with the Generalized Schur method," Indian Growth and Development Review, Emerald Group Publishing, vol. 2(2), pages 173-182, September.
    19. Pierre Monnin, 2014. "Inflation and Income Inequality in Developed Economies," Working Papers 1401, Council on Economic Policies.
    20. N'Yilimon Nantob, 2015. "Income Inequality and Inflation in Developing Countries: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2888-2902.

    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D30 - Microeconomics - - Distribution - - - General

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