Economics Research

Empirical Estimation of Inflation Tax and The Laffer Curve Surfaces: The Case of Iran

Document Type : Research Paper

Authors

Reza i Moosavi Mohsen 1
Haideh Norouzi 2

1 Ph.D. in Economics and Lecturer, Islamic Azad University, Shiraz Branch

2 M.S. in Economics and Lecturer, University of Applied Sciences, Kazeroon Center

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.

Keywords

Inflation Tax
Laffer Surface
Cagan Function
Inflation
Reserve Ratio

  • Receive Date 28 April 2009
  • Revise Date 22 May 2009
  • Accept Date 06 July 2009

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