Capital Income Taxes and the Benefit of Price Stability /
Feldstein, Martin.
Capital Income Taxes and the Benefit of Price Stability / Martin Feldstein. - Cambridge, Mass. National Bureau of Economic Research 1997. - 1 online resource: illustrations (black and white); - NBER working paper series no. w6200 . - Working Paper Series (National Bureau of Economic Research) no. w6200. .
September 1997.
Going from low inflation to price stability involves a short term loss (associated with the" higher unemployment rate required to reduce the inflation) and results in a series of welfare gains" in all future years. The primary source of these gains is the reduction in the distortions that result" from the interaction of tax rules and inflation. The paper quantifies the gains associated with" reducing the distortion in favor of current consumption rather than future consumption and in" favor of the consumption of owner occupied housing. These tax effects are much larger than the" effect on the demand for money that is generally emphasized in studies of the distorting effect of" inflation. The seignorage gains are also small in comparison to other effects of the tax-inflation" interaction. The estimates imply that the annual value of the net benefits of going from two" percent inflation to price stability are about one percent of GDP. Discounting this growing" stream of benefits at a real discount rate of five percent implies a net present value of about more" than 30 percent of GDP. All estimates of the short-run cost of going from low inflation to price" stability are less than this.
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Mode of access: World Wide Web.
Capital Income Taxes and the Benefit of Price Stability / Martin Feldstein. - Cambridge, Mass. National Bureau of Economic Research 1997. - 1 online resource: illustrations (black and white); - NBER working paper series no. w6200 . - Working Paper Series (National Bureau of Economic Research) no. w6200. .
September 1997.
Going from low inflation to price stability involves a short term loss (associated with the" higher unemployment rate required to reduce the inflation) and results in a series of welfare gains" in all future years. The primary source of these gains is the reduction in the distortions that result" from the interaction of tax rules and inflation. The paper quantifies the gains associated with" reducing the distortion in favor of current consumption rather than future consumption and in" favor of the consumption of owner occupied housing. These tax effects are much larger than the" effect on the demand for money that is generally emphasized in studies of the distorting effect of" inflation. The seignorage gains are also small in comparison to other effects of the tax-inflation" interaction. The estimates imply that the annual value of the net benefits of going from two" percent inflation to price stability are about one percent of GDP. Discounting this growing" stream of benefits at a real discount rate of five percent implies a net present value of about more" than 30 percent of GDP. All estimates of the short-run cost of going from low inflation to price" stability are less than this.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.