We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Inflationary Expectations, Economic Activity, Taxes, and Interest Rates: Comment.
- Authors
Ezrati, Milton J.
- Abstract
In a recent issue of the journal, The American Economic Review, economist Vito Tanzi presents an elegant analysis of the major determinants of interest rates. As part of that discussion, he investigates the impact of income taxes on interest rates, arguing that nominal interest rates should compensate lenders for the taxes paid on the premium for expected inflation. While most of Tanzi's analysis is thoroughly rigorous and complete, his treatment of the tax effect is inadequate in that it fails to account for taxes on alternative uses of funds, and it overlooks the special tax circumstances of some market participants and securities. This article broadens Tanzi's model to incorporate these essential tax considerations and demonstrates that Tanzi's treatment is a special case of a more general model. Tanzi analyzes the impact of taxes on interest rates purely from the point of view of a purchaser of financial instruments trying to achieve comparable real, after-tax returns before and after inflation.
- Subjects
ECONOMIC forecasting; PRICE inflation; ECONOMIC activity; ECONOMICS; PRICE inflation &; taxation; TAXATION; INTEREST rates; INCOME tax
- Publication
American Economic Review, 1982, Vol 72, Issue 4, p854
- ISSN
0002-8282
- Publication type
Article