BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 16/2002:
Some benefits of reducing inflation in transition economies
Monika Blaszkiewicz ()
, Jerzy Konieczny ()
, Anna Myslinska ()
, Artur Radziwiland ()
and Przemyslaw Wozniak ()
Abstract: We analyse welfare effects of the interactions between the
tax system and inflation in Poland and in Ukraine, using the framework
developed by Feldstein (1997, 1999). This approach stresses the fact that
inflation increases distortions created by the tax system, in particular
distortions to intertemporal saving decisions. We find that the effects are
much smaller in the two transition countries than in developed
marketeconomies. The reason is that taxation of investment returns is much
more limited. Our results suggest that taxes on investment returns should
be avoided in any future redesign of the tax system.
26 pages, December 18, 2002
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