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- Title
Interest Rates, Income Taxes, and Anticipated Inflation.
- Authors
Peek, Joe
- Abstract
The article derives and implements a direct test of the presence of income tax effects in the response of nominal interest rates to anticipated inflation. It provides some background to the problem and indicates why previous tests have been deficient. Section II of the article develops test equations from a simple short-run model and its third section presents empirical results. The article states that the effect of income taxation on economic behavior has always been a central concern of economists. This is particularly true in light of the current focus of macroeconomic policy on consequences of a substantial income tax reduction. While income taxation had long ago been integrated into the analysis of most other areas of economic behavior, only recently have theoretical analyses of the response of the nominal interest rate to the anticipated rate of inflation embodied the tax treatment of interest payments and receipt. The empirical literature, however, has not been able to lend much support to the theoretically plausible proposition that income taxation should be incorporated into the anticipated rate of inflation analysis.
- Subjects
INCOME tax; PRICE inflation &; income tax; EFFECT of inflation on interest rates; PRICE inflation &; taxation; INTEREST rates; PRICE inflation; MACROECONOMICS; EMPIRICAL research
- Publication
American Economic Review, 1982, Vol 72, Issue 5, p980
- ISSN
0002-8282
- Publication type
Article