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Price stability: Some costs and benefits in New Zealand

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  • Leo Bonato

Abstract

Tax systems based on nominal income are non-neutral to inflation. This paper evaluates the welfare effects of these non-neutralities in New Zealand. By using a stylised model of the New Zealand tax system, the paper calculates marginal effective tax rates for different values of the inflation rate. Following Feldstein (1997a, 1997b), the paper then estimates the welfare effects of going from 2 percent 'true' inflation to price stability. The results are supportive of price stability, but they are not robust to all plausible values of some key parameters.

Suggested Citation

  • Leo Bonato, 1999. "Price stability: Some costs and benefits in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 33(1), pages 27-49.
    • Handle: RePEc:taf:nzecpp:v:33:y:1999:i:1:p:27-49
    DOI: 10.1080/00779959909544296
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    References listed on IDEAS

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    1. Mervyn A. King & Don Fullerton, 1984. "The United Kingdom," NBER Chapters, in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 31-86, National Bureau of Economic Research, Inc.
    2. Mervyn A. King & Don Fullerton, 1984. "Introduction to "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany"," NBER Chapters, in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 1-6, National Bureau of Economic Research, Inc.
    3. Mervyn A. King & Don Fullerton, 1984. "The United States," NBER Chapters, in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 193-267, National Bureau of Economic Research, Inc.
    4. Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, number king84-1.
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    Cited by:

    1. Nyoni, Thabani, 2019. "Demystifying inflation dynamics in Rwanda: an ARMA approach," MPRA Paper 93982, University Library of Munich, Germany.
    2. repec:zbw:bofitp:2002_016 is not listed on IDEAS
    3. Blaszkiewicz, Monika & Konieczny, Jerzy & Myslinska, Anna & Radziwil, Artur & Przemyslaw, Wozniak, 2002. "Some benefits of reducing inflation in transition economies," BOFIT Discussion Papers 16/2002, Bank of Finland, Institute for Economies in Transition.
    4. Christie Smith, 2004. "The long-run effects of monetary policy on output growth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, September.
    5. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.
    6. Leo Bonato, 1998. "The benefits of price stability: some estimates for New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, September.
    7. Brian O'Reilly & Mylène Levac, 2000. "Inflation and the Tax System in Canada: An Exploratory Partial-Equilibrium Analysis," Staff Working Papers 00-18, Bank of Canada.
    8. Blaszkiewicz, Monika & Konieczny, Jerzy & Myslinska, Anna & Radziwil, Artur & Przemyslaw, Wozniak, 2002. "Some benefits of reducing inflation in transition economies," BOFIT Discussion Papers 16/2002, Bank of Finland Institute for Emerging Economies (BOFIT).

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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