Arbeitspapier
Optimal inflation with corporate taxation and financial constraints
This paper revisits the equilibrium and welfare effects of long-run inflation in the presence of distortionary taxes and financial constraints. Expected inflation interacts with corporate taxation through the deductibility of i) capital expenditures at historical value and ii) interest payments on debt. Through the first channel, inflation increases firms' taxable profits and further distorts their investment decisions. Through the second, expected inflation affects the effective real interest rate negatively, relaxes firms' financial constraints and stimulates investment. We show that, in the presence of collateralized debt, the second effect dominates. Therefore, in contrast to earlier literature, we find that when the tax code creates an advantage of debt financing, a positive rate of long-run inflation is beneficial in terms of welfare as it mitigates the financial distortion and spurs capital accumulation.
- Sprache
-
Englisch
- Erschienen in
-
Series: Sveriges Riksbank Working Paper Series ; No. 311
- Klassifikation
-
Wirtschaft
Price Level; Inflation; Deflation
Interest Rates: Determination, Term Structure, and Effects
Financial Markets and the Macroeconomy
Monetary Policy
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Thema
-
optimal monetary policy
Friedman rule
credit frictions
tax benefits of debt
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Finocchiaro, Daria
Lombardo, Giovanni
Mendicino, Caterina
Weil, Philippe
- Ereignis
-
Veröffentlichung
- (wer)
-
Sveriges Riksbank
- (wo)
-
Stockholm
- (wann)
-
2015
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Finocchiaro, Daria
- Lombardo, Giovanni
- Mendicino, Caterina
- Weil, Philippe
- Sveriges Riksbank
Entstanden
- 2015
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