English, Article, Journal or magazine article edition: Some Benefits of Reducing Inflation in South Africa Rangan Gupta; Josine Uwilingiye

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Some Benefits of Reducing Inflation in South Africa
Author
  • Rangan Gupta
  • Josine Uwilingiye
Physical Description
  • preprint
Notes
  • This paper evaluates the welfare gain from reducing inflation permanently from two percent to price stability and compares it with the output cost associated with this transition. The paper emphasizes the distortions caused by the interaction of inflation and capital income taxation, in calculating the gain from moving to a zero rate of inflation. Though the annual deadweight loss of a two percent inflation rate is 0.20 percent of GDP - a relatively small number when compared to the literature, since the real gain from shifting to price stability grows in perpetuity at the rate of growth of GDP, the present value is a substantial multiple of the annual welfare gain. Calculations reveal a present value gain of 13.33 percent of GDP. Since the corresponding one-off output cost of moving from two percent inflation to price stability is 0.034 percent of GDP, the gain outweighs the cost by an overwhelming margin.
  • Inflation, Non-Indexed Tax System, Welfare Cost
  • RePEc:pre:wpaper:200915
Language
  • English
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