The effects of inflation taxation on resource allocation and welfare in Iran's economy: presentation of a neoclassical endogenous growth model with leisure and production externality

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IZADKHASTI HOJJAT; SAMADI SAEED; DALLALI ISFAHANI RAHIM

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Journal: Journal of Economic Research Year:2015 | Volume:50 | Issue:2 Page(s): 253-280

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Title

The effects of inflation taxation on resource allocation and welfare in Iran's economy: presentation of a neoclassical endogenous growth model with leisure and production externality

Author(s)

IZADKHASTI HOJJAT | SAMADI SAEED | DALLALI ISFAHANI RAHIM | Issue Writer Certificate

Keywords

dynamic optimizationQ1

inflation taxQ2

moneyQ2

welfareQ2

externalityQ2

Abstract

How inflation taxation affects resource allocation and welfare has received a great deal of attention. So far, this debate has been controversial. In this paper, we examine how nominal money growth as a means of public finance affects resource allocation and welfare in a neoclassical endogenous growth model with leisure and money in the utility function and production externality. The present study is different from other studies in two aspects: first, in a dynamic optimization model, equations related to consumption and real money balances relative to GDP, leisure, capital stock, production and welfare level in a steady state, extracted in form of the parameters have been derived; second, sensitivity analysis has been conducted for each of them regarding the rate of inflation tax. The results obtained from sensitivity analysis indicate that in a steady state without externality of production, by increasing inflation tax rate, the ratio of consumption to GDP remains constant, but labor, capital stock and production will increase. With a decrease in the ratio of real money balances to GDP and leisure, the level of social welfare in steady state decreases. Considering production externality, capital stock and production increase more rapidly; moreover, welfare level in steady state increases.

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APA: Copy

IZADKHASTI, HOJJAT, SAMADI, SAEED, & DALLALI ISFAHANI, RAHIM. (2015). The effects of inflation taxation on resource allocation and welfare in Iran's economy: presentation of a neoclassical endogenous growth model with leisure and production externality. TAHGHIGHAT-E-EGHTESADI, 50(2 ), 253-280. SID. https://sid.ir/paper/11807/en

Vancouver: Copy

IZADKHASTI HOJJAT, SAMADI SAEED, DALLALI ISFAHANI RAHIM. The effects of inflation taxation on resource allocation and welfare in Iran's economy: presentation of a neoclassical endogenous growth model with leisure and production externality. TAHGHIGHAT-E-EGHTESADI[Internet]. 2015;50(2 ):253-280. Available from: https://sid.ir/paper/11807/en

IEEE: Copy

HOJJAT IZADKHASTI, SAEED SAMADI, and RAHIM DALLALI ISFAHANI, “The effects of inflation taxation on resource allocation and welfare in Iran's economy: presentation of a neoclassical endogenous growth model with leisure and production externality,” TAHGHIGHAT-E-EGHTESADI, vol. 50, no. 2 , pp. 253–280, 2015, [Online]. Available: https://sid.ir/paper/11807/en

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