Inflation Aversion and the Optimal Inflation Tax
The optimal inflation tax is reexamined in the framework of dynamic second best economy populated by individuals with inflation aversion. A simple formula for the optimal inflation rate is derived. Different from the literature, it is shown that if the marginal excess burden of other distorting taxes approaches zero, Friedman's rule for optimum quantity of money is not optimal, and the optimal inflation tax is negative; if the marginal excess burden of other taxes is nonzero, the optimal inflation rate is indeterminate and relies on the tradeoffs between the impatience effect of inflation and the effects of other economic forces in the monetary economy.
|Date of creation:||2011|
|Date of revision:|
|Publication status:||Published in Annals of Economics and Finance, May 2011, pages 13-30|
|Contact details of provider:|| Web page: http://cema.cufe.edu.cn/|
More information through EDIRC
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.:
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
- Correia, Isabel & Teles, Pedro, 1996.
"Is the Friedman Rule Optimal When Money is an Intermediate Good?,"
CEPR Discussion Papers
1287, C.E.P.R. Discussion Papers.
- Correia, Isabel & Teles, Pedro, 1996. "Is the Friedman rule optimal when money is an intermediate good?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 223-244, October.
- V. V. Chari & Patrick J. Kehoe, 1998.
"Optimal fiscal and monetary policy,"
251, Federal Reserve Bank of Minneapolis.
- Isabel Correia & Pedro Teles, 1999.
"The Optimal Inflation Tax,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 325-346, April.
- Isabel Correia & Pedro Teles, 1997. "The optimal inflation tax," Discussion Paper / Institute for Empirical Macroeconomics 123, Federal Reserve Bank of Minneapolis.
- Turnovsky, Stephen J. & Brock, William A., 1980. "Time consistency and optimal government policies in perfect foresight equilibrium," Journal of Public Economics, Elsevier, vol. 13(2), pages 183-212, April.
- Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
- Heng-fu Zou & Liutang Gong & Xinsheng Zeng, 2011.
Annals of Economics and Finance,
Society for AEF, vol. 12(1), pages 1-11, May.
- Gaowang Wang & Heng-fu Zou, 2011.
"Inflation Aversion and the Optimal Inflation Tax,"
CEMA Working Papers
480, China Economics and Management Academy, Central University of Finance and Economics.
- V.V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993.
"Optimality of the Friedman rule in economies with distorting taxes,"
158, Federal Reserve Bank of Minneapolis.
- Chari, V. V. & Christiano, Lawrence J. & Kehoe, Patrick J., 1996. "Optimality of the Friedman rule in economies with distorting taxes," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 203-223, April.
- V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimality of the Friedman Rule in Economies with Distorting Taxes," NBER Working Papers 4443, National Bureau of Economic Research, Inc.
- Wang, Gaowang & Zou, Heng-fu, 2011. "Inflation aversion and macroeconomic policy in a perfect foresight monetary model," Economic Modelling, Elsevier, vol. 28(4), pages 1802-1807, July.
- Carlos E. da Costa & IvÃ¡n Werning, 2008. "On the Optimality of the Friedman Rule with Heterogeneous Agents and Nonlinear Income Taxation," Journal of Political Economy, University of Chicago Press, vol. 116(1), pages 82-112, 02.
- Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-56, July-Aug..
- Drazen, Allan, 1979. "The optimal rate of inflation revisited," Journal of Monetary Economics, Elsevier, vol. 5(2), pages 231-248, April.
- Auernheimer, Leonardo, 1974. "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 598-606, May/June.
- Marty, Alvin L, 1973. "Growth, Satiety, and the Tax Revenue from Money Creation," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1136-52, Sept.-Oct.
- Chamley, Christophe, 1985. "Efficient Taxation in a Stylized Model of Intertemporal General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 451-68, June.
- Siegel, Jeremy J., 1978. "Notes on optimal taxation and the optimal rate of inflation," Journal of Monetary Economics, Elsevier, vol. 4(2), pages 297-305, April.
When requesting a correction, please mention this item's handle: RePEc:cuf:wpaper:480. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Qiang Gao)
If references are entirely missing, you can add them using this form.