Currency Substitution and the Regressivity of Inflationary Taxation

Authors

  • Federico A. Sturzenegger University of California, Los Angeles National Bureau of Economic Research

Keywords:

inflation tax, currency substitution, financial adaptation, regressivity, income distribution, transactions technology

Abstract

The purpose of this paper is to show that in the presence of financial adaptation or currency substitution, the inflation tax is extremely regressive. This regressivity arises from the existence of a fixed cost of switching to inflation-proof transactions technologies. This fixed cost makes it optimal only for those agents with sufficiently high incomes to switch out of domestic currency. The effects are illustrated and quantified for a particular case.

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Published

2010-03-11

How to Cite

Sturzenegger, F. A. (2010). Currency Substitution and the Regressivity of Inflationary Taxation. Economic Analysis Review, 7(1), 177–192. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/225

Issue

Vol. 7 No. 1 (1992)

Section

Articles