Inflation and taxes on asset income
Suppose that the tax rate on asset income is Tc and tax isleived on nominal interest income. Assume that the tax applies tothe real returns on capital.
a. what is the after tax real interest rate on bonds? considerpermanet, unanticipated increase in the money growth rate from u'to u, assume that tax of income does not change
b. what is the effect on the inflation rate?
what is the effect on after tax real return on capital
what is the effect on the after tax real interest rate on bonds?what happends to the nominal interest rate? does it move one forone with income
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