The Swedish Journal of Economics
Journal Article

Inflation in the Theory of Public Finance

Edmund S. Phelps
The Swedish Journal of Economics
Vol. 75, No. 1, Stabilization Policy (Mar., 1973), pp. 67-82
Published by: Wiley on behalf of The Scandinavian Journal of Economics
DOI: 10.2307/3439275
https://www.jstor.org/stable/3439275
Page Count: 16

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Topics: Inflation tax, Income taxes, Inflation rates, Liquidity, Revenue, Optimal taxation, Consumption taxes, Public finance, Economic growth rate
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Inflation in the Theory of Public Finance
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Abstract

What are the essential features of the thought-experiment one has in mind when he speaks of the "tax-like effect" of an increase in the anticipated rate of inflation? Various authors have had various experiments in mind and thus arrived at differing measures of the revenue from inflation. The present author proposes that inflation-tax analysis be carried out along now-standard lines-namely, by the method of differential tax analysis employed by Wicksell, Ramsey, Boiteux, Musgrave and virtually every contemporary. The implementation of this approach in a model of money and inflation requires that the treasury adjust its deficit so as to maintain invariant the sum-of-income-effects from the combined operations of the branches of government in the face of a rise in the anticipated inflation rate. The results of the analysis are as attractive as the method.
The Swedish Journal of Economics © 1973 The Scandinavian Journal of Economics