Inflation Taxation and Welfare with Externalities and Leisure

Wai-Ming Ho, Jinli Zeng () and Jie Zhang

Journal of Money, Credit and Banking, 2007, vol. 39, issue 1, 105-131

Abstract: This paper examines how inflation taxation affects 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. Copyright 2007 The Ohio State University.

Date: 2007
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Journal Article: Inflation Taxation and Welfare with Externalities and Leisure (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:39:y:2007:i:1:p:105-131

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