INFLATION, TAXATION, AND LONG-RUN GROWTH

This paper investigates the relationship between inflation and growth in an endogenous growth framework. Two models that illustrate different channels through which inflation affects growth are presented. They emphasize the effect of inflation on the rate of investment and on the productivity of investment, respectively. Then, inflation is considered to be part of a public finance problem, where high rates of inflation are the result of inefficiencies in the tax system. The negative relationship between inflation and growth is assessed empirically for a group of twelve Latin American countries for the period 1950-85.