English, Article edition: Wealth Distribution, Inflation Tax, and Societal Benefits of Illiquid Bonds YOUNG SIK KIM; MANJONG LEE

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  • article
Language
  • English

Edition details

Title
  • Wealth Distribution, Inflation Tax, and Societal Benefits of Illiquid Bonds
Author
  • YOUNG SIK KIM
  • MANJONG LEE
Physical Description
  • article
Notes
  • Illiquid nominal government bonds are shown to have two opposing effects on welfare. First, the relatively poor choose to top-up money balances for future consumption by purchasing nominal bonds at a discount. The wealth distribution becomes more centered with a smaller consumption deviation from the first best. Second, the higher inflation tax on monetary wealth to finance interest payments makes money less valuable, so that the quantity of output produced in exchange for money decreases. The trade-off between the welfare-enhancing effect on wealth distribution and the distortionary effect on output implies the socially optimal discount rate and liquidity. Copyright (c) 2009 The Ohio State University.
  • RePEc:mcb:jmoncb:v:41:y:2009:i:5:p:809-830
Language
  • English
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