The Burden of Unanticipated Inflation: Analysis of an Overlapping Generations Model with Progressive Income Taxation and Staggered Prices

34 Pages Posted: 3 Apr 2007

See all articles by Burkhard Heer

Burkhard Heer

University of Augsburg; CESifo (Center for Economic Studies and Ifo Institute)

Alfred Maussner

University of Augsburg - Faculty of Business and Economics

Date Written: February 2007

Abstract

Inflation is often associated with a loss for the poor in the medium and long run. The cyclical effects are basically unknown. We study this question in a dynamic optimizing sticky price model. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels through which unanticipated inflation affects the income and wealth distribution: 1) factor prices, 2) the 'bracket creep', and 3) sticky pensions. In our model, unanticipated inflation decreases the inequality of factor income, while the redistributive effect of inflation on total income depends on whether the government is spending the additional revenues on transfers or public consumption.

Keywords: unanticipated inflation, wealth distribution, income distribution, inequality, progressive income taxation, Calvo price staggering

JEL Classification: E31, E32, E52, D31, D58

Suggested Citation

Heer, Burkhard and Maussner, Alfred, The Burden of Unanticipated Inflation: Analysis of an Overlapping Generations Model with Progressive Income Taxation and Staggered Prices (February 2007). Available at SSRN: https://ssrn.com/abstract=977126 or http://dx.doi.org/10.2139/ssrn.977126

Burkhard Heer (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Alfred Maussner

University of Augsburg - Faculty of Business and Economics ( email )

Universitaetsstr. 16
86135 Augsburg
Germany
+49 821 598 4187 (Phone)
+49 821 598 4231 (Fax)

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