Empirical Estimation of Inflation Tax and The Laffer Curve Surfaces: The Case of Iran
Volume 11, Issue 42, Autumn 2011, Pages 39-64
Reza i Moosavi Mohsen, Haideh Norouzi
Abstract This paper investigates the inflation tax. Laffer Curve surfaces of inflation tax have been estimated in Iran, using time series data for the period 1961-2006. Considering the high inflation ratio of iran during the last three decades, it is hypothesized that iran operates in fourth region of the Laffer curve surface. In this research, Cagan!s money demand function is used. Also, we consider an explicit role for the reserve ratio and it introduced inflation and required reserve ratio as locus of instruments which maximize the inflation tax. Results of this survey show that Iran operates in right side of the Laffer curve surfaces (region I) and inflation tax maximize at the highest inflation rate.