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Heer, Burkhard
Süssmuth, Bernd
Year of Publication: 
Series/Report no.: 
CESifo Working Paper No. 951
Center for Economic Studies and ifo Institute (CESifo), Munich
We present new empirical evidence for the US economy that inflation reduces the inequality of the earnings distribution. The main mechanism emphasized in this paper is the tax income bracket effect. Governments only adjust the nominal income tax brackets slowly to a rise in prices, typically less often than once every other year in the US post-war history. We also develop a theoretical general equilibrium monetary model with income heterogeneity. In this model, the effect of higher inflation on income distribution is shown to be rather small. However, we find that a longer duration between two successive adjustments of the income tax schedule reduces employment, savings, and output significantly.
cold progression
income distribution
tax income brackets
Document Type: 
Working Paper

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