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Price stability: Some costs and benefits in New Zealand

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  • Leo Bonato

Abstract

Tax systems based on nominal income are non-neutral to inflation. This paper evaluates the welfare effects of these non-neutralities in New Zealand. By using a stylised model of the New Zealand tax system, the paper calculates marginal effective tax rates for different values of the inflation rate. Following Feldstein (1997a, 1997b), the paper then estimates the welfare effects of going from 2 percent 'true' inflation to price stability. The results are supportive of price stability, but they are not robust to all plausible values of some key parameters.

Suggested Citation

  • Leo Bonato, 1999. "Price stability: Some costs and benefits in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 33(1), pages 27-49.
  • Handle: RePEc:taf:nzecpp:v:33:y:1999:i:1:p:27-49
    DOI: 10.1080/00779959909544296
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    Cited by:

    1. Blaszkiewicz, Monika & Konieczny, Jerzy & Myslinska, Anna & Radziwil, Artur & Przemyslaw, Wozniak, 2002. "Some benefits of reducing inflation in transition economies," BOFIT Discussion Papers 16/2002, Bank of Finland, Institute for Economies in Transition.
    2. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.
    3. Leo Bonato, 1998. "The benefits of price stability: some estimates for New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, September.
    4. Brian O'Reilly & Mylène Levac, 2000. "Inflation and the Tax System in Canada: An Exploratory Partial-Equilibrium Analysis," Staff Working Papers 00-18, Bank of Canada.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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