How Inflation Destroys Value: Taxes

12 Pages Posted: 12 Feb 2013 Last revised: 2 May 2023

Date Written: April 28, 2023


La versión española de este artículo se puede encontrar en:

The return on investments depends on the effects of inflation. To analyze the effect of inflation, we shall use a case study of two companies engaging in the same business and in identical market conditions but in two countries with very different inflation rates. The problem of inflation and its consequences is expressed very clearly. And its solution is very simple. When inflation is high, company earnings are artificially high (i.e., not caused by an improvement in the company’s situation), which means that the tax paid is higher than if there was no inflation. Consequently, investments’ real return is smaller.

Keywords: Value, inflation, free cash flow, equity cash flow

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, How Inflation Destroys Value: Taxes (April 28, 2023). Available at SSRN: or

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)


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