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Inflation, Taxation, and Interest Rates
Author(s) -
GANDOLFI ARTHUR E.
Publication year - 1982
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1982.tb02224.x
Subject(s) - economics , depreciation (economics) , inflation (cosmology) , interest rate , monetary economics , capital (architecture) , investment (military) , fisher hypothesis , nominal interest rate , real interest rate , relative price , macroeconomics , microeconomics , capital formation , financial capital , profit (economics) , physics , archaeology , theoretical physics , politics , law , political science , history
This paper demonstrates that the response of nominal interest rates to changes in inflationary expectations should lie between that predicted by the “Fisher” and “Darby” effects. The exact nature of the response will depend on the relative size of the income and capital gains tax rates, and the relative size of the derivatives of investment and savings to their respective after‐tax real rates. The other major conclusion of this paper is that capital gains taxation offsets the negative effect on investment produced by treating depreciation on a historic rather than a replacement cost basis.