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The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices

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  • Heer, Burkhard
  • Maußner, Alfred

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.

Suggested Citation

  • Heer, Burkhard & Maußner, Alfred, 2012. "The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 16(2), pages 278-308, April.
    • Handle: RePEc:cup:macdyn:v:16:y:2012:i:02:p:278-308_00
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    Citations

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    Cited by:

    1. Olivier Allais & Yann Algan & Edouard Challe & Xavier Ragot, 2020. "The Welfare Cost of Inflation Risk under Imperfect Insurance," Annals of Economics and Statistics, GENES, issue 138, pages 1-20.
    2. Yann Algan & Olivier Allais & Edouard Challe & Xavier Ragot, 2012. "Monetary Shocks Under Incomplete Markets," Working Papers hal-01169658, HAL.
    3. repec:spo:wpmain:info:hdl:2441/562ju27dra9dnp6j4nvhq0tgfq is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/1j0a1p4ifa98paomt4907gu4qo is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/562ju27dra9dnp6j4nvhq0tgfq is not listed on IDEAS
    6. repec:spo:wpmain:info:hdl:2441/3ao9avev669hj9hvol1l0lr6im is not listed on IDEAS
    7. Heer, Burkhard & Süssmuth, Bernd, 2013. "Tax bracket creep and its effects on income distribution," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 393-408.
    8. repec:hal:spmain:info:hdl:2441/1j0a1p4ifa98paomt4907gu4qo is not listed on IDEAS
    9. Burkhard Heer & Alfred Maußner, 2024. "Dynamic General Equilibrium Modeling," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-031-51681-8, December.
    10. Yann Algan & Xavier Ragot, 2010. "Monetary policy with Heterogeneous Agents and Borrowing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 295-316, April.
    11. Masaya Yasuoka, 2018. "Money and Pay-As-You-Go Pension," Economies, MDPI, vol. 6(2), pages 1-15, March.
    12. Scharrer Christian, 2021. "The effects of financing rules in pay-as-you-go pension systems on the life and the business cycle," German Economic Review, De Gruyter, vol. 22(4), pages 489-511, November.
    13. Burkhard Heer, 2007. "On the Modeling of the Income Distribution Business Cycle Dynamics," CESifo Working Paper Series 1945, CESifo.
    14. repec:hal:spmain:info:hdl:2441/3ao9avev669hj9hvol1l0lr6im is not listed on IDEAS
    15. Larin, Benjamin, 2016. "Bubble-driven business cycles," Working Papers 143, University of Leipzig, Faculty of Economics and Management Science.

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