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THE BURDEN OF UNANTICIPATED INFLATION: ANALYSIS OF AN OVERLAPPING-GENERATIONS MODEL WITH PROGRESSIVE INCOME TAXATION AND STAGGERED PRICES

Published online by Cambridge University Press:  30 December 2011

Burkhard Heer  and
Alfred Maußner
Burkhard Heer*
Affiliation:
Free University of Bolzano
Alfred Maußner
Affiliation:
University of Augsburg
*
Address correspondence to: Burkhard Heer, School of Economics and Management, Free University of Bolzano, Piazza Università 1, I-39100 Bolzano, Italy; e-mail: Burkhard.Heer@unibz.it.
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Abstract

Inflation is often associated with a loss for the poor in the medium and long term. We study the short-run redistributive effects of unanticipated inflation in a dynamic optimizing sticky price model of the business cycle. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels of the effect of inflation on income distribution: (1) factor prices, (2) “bracket creep,” and (3) sticky pensions. Unanticipated inflation that is caused by monetary expansion is found to reduce income inequality. In particular, an increase of the money growth rate by one standard deviation results in a 1% drop of the Gini coefficient of disposable income if extra tax revenues are transferred lump-sum to the households.

Keywords

Unanticipated InflationWealth DistributionIncome DistributionInequalityProgressive Income TaxationCalvo Price Staggering
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 2 , April 2012 , pp. 278 - 308
Copyright
Copyright © Cambridge University Press 2011

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