Collection Lags and the Optimal Inflation Tax: A Reconsideration

July 1, 1993

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José A. Tijerina, and Alex Mourmouras. Collection Lags and the Optimal Inflation Tax: A Reconsideration, (USA: International Monetary Fund, 1993) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The observation that collection lags combine with inflation to erode fiscal revenues has long been a strong argument against seigniorage (Tanzi (1978)). However, with the exception of Dixit (1991), who used a general equilibrium model to reject this argument, the optimal tax literature has not analyzed how collection lags affect desired tax structures. In this paper, this issue is re-examined using an overlapping generations version of Dixit’s model. It is shown that depending on the specification of the collection cost function and the size of government spending in GDP, collection lags may increase, leave unchanged, or reduce the desired rate of inflation.

Subject: Currencies, Expenditure, Income and capital gains taxes, Income tax systems, Inflation

Keywords: Disp-formula id, Inflation tax, Rate of inflation, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1993/060
Stock No:

WPIEA0601993
ISBN:

9781451965346
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 41, No. 1, March 1994.

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