On the Almost Neutrality of Inflation: Notes on Taxation and the Welfare Costs of Inflation
40 Pages Posted: 21 Mar 2001
Date Written: July 1980
In this paper I attempt to clarify the nature of the losses associated with inflation within a conventional model of a competitive economy. I shall argue that were inflation fully anticipated, it would be "almost neutral" provided (a) that the tax system were fully indexed and (b) that interest were paid on bank deposits (as to an increasing extent it is in the United States). However, unanticipated inflation may have significant effects.
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