Inflation Taxation and Welfare with Externalities and Leisure

Wai-Ming Ho () and Jie Zhang ()

No 906, MRG Discussion Paper Series from School of Economics, University of Queensland, Australia

Abstract: This paper examines how inflation taxation a ects resource allocation and welfare in a neoclassical growth model with leisure, a production externality and money in the utility function. Switching from consumption taxation to inflation taxation to finance government spending reduces real money balances relative to income, but increases consumption, labor, capital and output. The net welfare effect of this switch depends crucially on the strength of the externality and on the elasticity of intertemporal substitution: While it is always negative without the externality, it is likely to be positive with a strong externality and elastic intertemporal substitution.

New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-upt

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http://www.uq.edu.au/economics/mrg/0906.pdf (application/pdf)

Related works:
Journal Article: Inflation Taxation and Welfare with Externalities and Leisure (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:qld:uqmrg6:09

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