On inflation as a regressive consumption tax

By Andrés Erosa, Gustavo Ventura. 2002

393 citations recorded by the source corpus.

Evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed. We build a monetary growth model consistent with key features of cross- sectional household data and use this framework to study the distributional impact of inflation. At the aggregate level, our model economy behaves similarly to standard monetary growth models within the representative agent abstraction. Inflation has, however, important distributional effects since it is effectively a regressive consumption tax. Thus, neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/6351c10edd93a0acd98b1b566f3dd81427874604

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In Accounting

1. Ayako Saiki
2. Jon Frost
3. A. Samarina
4. Jakob de Haan
5. Klaus Adam
6. Y. Gorodnichenko
7. F. Martin
8. A. Colciago

In Economics and Econometrics

1. Olivier Coibion
2. Y. Gorodnichenko
3. Horacio Sapriza
4. Ayako Saiki
5. Jon Frost
6. A. Samarina
7. Jakob de Haan
8. Klaus Adam

Citations in the corpus

• The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences (2007, neutral): “Erosa and Ventura (2002) introduce transaction costs and heterogeneity in portfolio holdings in an otherwise neoclassical model and show that these frictions can make the costs of inflation variation asymmetric.”
• The Fiscal Multiplier (2019, neutral): “Changes in interest rates redistribute between debtors (the government) and lenders (Erosa and Ventura, 2002; Doepke and Schneider, 2006).”
• CENTRAL BANK POLICIES AND INCOME AND WEALTH INEQUALITY: A SURVEY (2019, positive): “Albanesi (2007) derives a positive correlation between inflation and income inequality in a model similar to that in Erosa and Ventura (2002), where the inflation tax is set in a political bargaining game.”
• A Positive Theory of Government Debt (2009, background): “First, papers in the inflation cost literature —see Aiyagari, Brown and Eckstein (1998) and Erosa and Ventura (2002)— actually assume perfect complementarity between cash and credit goods. Second, consider that the cash-in-advance constraint implies that consumption of cash goods equals real balance”
• Monetary Policy and the Redistribution Channel (2017, neutral): “Finally, since I assume that all assets are remunerated at the risk-free rate, my analysis does not address the unequal incidence of inflation due to larger cash holdings by the poor (Erosa and Ventura 2002; Albanesi 2007).”
• Inflation and Inequality (2007, neutral): “[19] Erosa, Andrés, Gustavo Ventura, 2000, ”On Inflation as a Regressive Consumption Tax”, Manuscript, University of Western Ontario.”
• Innocent Bystanders? Monetary Policy and Inequality in the U.S. (2012, positive): “…households hold different portfolios and some financial assets are more protected against inflation surprises than others, then monetary policy actions can, via their effects on inflation, cause a reallocation of wealth across agents, as emphasized in Erosa and Ventura (2002) and Albanesi (2007).”
• Price Level Changes and the Redistribution of Nominal Wealth Across the Euro Area (2014, methodology): “We first construct from HFCS data the variables showing up in the EAA HH sector balance sheet, following the suggestions in Honkkila and Kavonius (2012), and then aggregate these across HHs to compute HFCS aggregates corresponding to the EAA positions. Appendix 8.1 explains in detail how this is ach”
• Fiscal Policy and Default Risk in Emerging Markets (2009, background): “In a study on the welfare effects of inflation, Erosa and Ventura (2001) find that the modeling of inflation makes it serve effectively as a regressive consumption tax.”
• Financial development and income inequality in Pakistan: An application of ARDL approach (2011, neutral): “3 Cysne et al. (2004), Erosa and Ventura (2002), Lucas and Stokey (1987), Sturzenegger (1992), develop models which purport to answer this question.”
• Does unconventional monetary policy affect inequality? Evidence from Japan (2014, background): “Subsequently, the literature has examined a number of channels by which monetary policy can impact income inequality in normal times, including through the impact of inflation on borrowers and savers (see Erosa and Ventura, 2002; Albanesi, 2007; Doepke and Schneider, 2006).”