A popular argument in favor of price stability is that the inflation-tax burden would disproportionately fall on the poor because wealth is unevenly distributed and portfolio composition of poorer households is skewed towards a larger share of money holdings. We reconsider the issue in a DSGE model characterized by limited participation to the market for interest bearing assets (LAMP). We show that a combination of higher inflation and lower income taxes reduces inequality. When we calibrate the share of constrained agents to fit the wealth Gini index for the US, the optimal inflation rate is above 4%. This result is robust to alternative foundations of money demand equations.

Menna, L., Tirelli, P. (2017). Optimal inflation to reduce inequality. REVIEW OF ECONOMIC DYNAMICS, 24, 79-94 [10.1016/j.red.2017.01.004].

Optimal inflation to reduce inequality

Menna, L
;
Tirelli, P
Membro del Collaboration Group
2017

Abstract

A popular argument in favor of price stability is that the inflation-tax burden would disproportionately fall on the poor because wealth is unevenly distributed and portfolio composition of poorer households is skewed towards a larger share of money holdings. We reconsider the issue in a DSGE model characterized by limited participation to the market for interest bearing assets (LAMP). We show that a combination of higher inflation and lower income taxes reduces inequality. When we calibrate the share of constrained agents to fit the wealth Gini index for the US, the optimal inflation rate is above 4%. This result is robust to alternative foundations of money demand equations.
Articolo in rivista - Articolo scientifico
Inflation, Monetary and fiscal policy, Ramsey plan, Inequality
English
2017
24
79
94
none
Menna, L., Tirelli, P. (2017). Optimal inflation to reduce inequality. REVIEW OF ECONOMIC DYNAMICS, 24, 79-94 [10.1016/j.red.2017.01.004].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/220808
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