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Effects of inflation on wealth distribution: Do stock market participation fees and capital income taxation matter?

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  • Heer, Burkhard
  • Sussmuth, Bernd

Abstract

The effect of a permanent change of inflation on the distribution of wealth is analyzed in a general equilibrium OLG model that is calibrated with regard to the characteristics of the US economy. Poor agents accumulate savings predominantly in the form of money, while rich agents participate in the stock market and accumulate equity. Surprisingly, an increase of inflation results in a lower stock market participation rate; in addition, the distribution of wealth becomes more unequal, even though the quantitative effect is economically negligible. Furthermore, we show that the welfare costs of anticipated inflation are considerably lower than in Imrohoroglu (1992).
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  • Heer, Burkhard & Sussmuth, Bernd, 2007. "Effects of inflation on wealth distribution: Do stock market participation fees and capital income taxation matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 277-303, January.
  • Handle: RePEc:eee:dyncon:v:31:y:2007:i:1:p:277-303
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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. Levy, Horacio & Nogueira, José Ricardo & Siqueira, Rozane Bezerra & Immervoll, Herwig & O'Donoghue, Cathal, 2010. "Simulating the impact of inflation on the progressivity of personal income tax in Brazil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 64(4), December.
    3. Burkhard Heer & Bernd Sussmuth, 2009. "The savings-inflation puzzle," Applied Economics Letters, Taylor & Francis Journals, vol. 16(6), pages 615-617.
    4. Bhattacharya, Joydeep, 2003. "Monetary Policy And The Distribution Of Income," Staff General Research Papers Archive 11072, Iowa State University, Department of Economics.
    5. Edgar A. Ghossoub, 2015. "Endogenous Financial Structure and Monetary Policy," Working Papers 0153eco, College of Business, University of Texas at San Antonio.
    6. 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.
    7. Heer, Burkhard & Maußner, Alfred, 2015. "The Cash-In-Advance Constraint In Monetary Growth Models With Labor Market Search," Macroeconomic Dynamics, Cambridge University Press, vol. 19(01), pages 144-166, January.
    8. Hoover, Gary A. & Giedeman, Daniel C. & Dibooglu, Sel, 2009. "Income inequality and the business cycle: A threshold cointegration approach," Economic Systems, Elsevier, vol. 33(3), pages 278-292, September.
    9. Edgar A. Ghossoub, 2015. "Endogenous Financial Structure and Monetary Policy," Working Papers 0162eco, College of Business, University of Texas at San Antonio.
    10. Koka Katerina, 2014. "Inflation effects on capital accumulation in a model with residential and non-residential assets," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-28, January.
    11. Wai-Yip Alex Ho & Chun-Yu Ho, 2016. "Inflation, Financial Developments, and Wealth Distribution," IMF Working Papers 16/132, International Monetary Fund.

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