On the Use of the Inflation Tax when Non-Distortionary Taxes are Available

Posted: 23 Jul 2001  

Joydeep Bhattacharya

Iowa State University - Department of Economics

Joseph Haslag

University of Missouri at Columbia - Department of Economics

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Abstract

Using a pure-exchange overlapping generations model in which money is valued because of a legal restriction, we show the following: a) a benevolent government may make some use of the inflation tax in conjunction with a lump-sum tax on the young but not if lump-sum taxes on the old are available, and b) the welfare-maximizing monetary policy may deviate from the Friedman rule (contract the money supply so as to equate the real return on money and other competing stores of value) in either case.

Keywords: Inflation tax, Friedman rule, reserve requirements, optimal taxation

JEL Classification: E4, E5, E6

Suggested Citation

Bhattacharya, Joydeep and Haslag, Joseph, On the Use of the Inflation Tax when Non-Distortionary Taxes are Available. Review of Economic Dynamics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=272108

Joydeep Bhattacharya (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-5886 (Phone)
515-294-0221 (Fax)

Joseph Haslag

University of Missouri at Columbia - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

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