Creating Character Without Characteristics (ePub)

Another reason for this aggressive inflation targeting has to do with an effect called nominal price rigidity, which implies that people do not like price cuts especially when these prices are workers' wages. Surname. However, some occupations have a decreasing value over time and have a decreasing salary rate compared to other occupations. In fact, it is easier to reduce pay for a specific period of time than to tell someone that he is taking a pay cut than to keep some salary level fixed while the average salary increases. Another reason to look for a positive average inflation rate is because this means interest rates are often higher than average, making it easier for central banks to control credit cycles; High interest rates give central banks many options to reduce interest rates when deciding whether to stimulate economic activity by encouraging more lending.(24) A third reason for The objective of aggressive inflation targeting as mentioned is that it allows taxation to be more convenient and less objectionable - as Jean Baptiste Collbert said: The art of taxation lies in plucking as many feathers as the goose makes the least noise..

The modern tax system is extremely efficient. First, you pay taxes when you make money (income tax) and then when you consume it (value added or consumption tax). Between what you earn after paying taxes, and what you use there is usually a little bit left over, which we call savings, and without inflation the government can find it very difficult to help itself. I myself have income from this middle amount. However, when inflation occurs, taxing savings becomes feasible. A positive inflation rate increases asset prices and this increase in price can be converted into capital revenues and real estate tax receipts. Even more important, higher inflation drives up interest rates and governments can tax income on interest income (we call it yield). Let's consider the following examples: