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Mr. Vito Tanzi

Inflation affects individuals and income classes in many ways—as consumers, taxpayers, wage earners, savers, asset holders, lenders, borrowers, and so forth. Because of this multiplicity of influences, it is difficult, and perhaps impossible, to assess the total economic impact of inflation. For this reason, empirical studies have limited themselves to analyzing the impact of inflation on individuals or income classes in their roles as consumers, savers, or wage earners. This partial approach does not answer the question of whether the total impact of inflation is or is not beneficial to individuals in particular income classes, but it does provide interesting information that can be useful for policy purposes. This paper will follow this partial approach and analyze the impact of inflation on individuals in connection with the tax treatment of interest paid or received in the United States.

International Monetary Fund. External Relations Dept.

Agrowing number of countries are choosing to give up their monetary independence to join currency unions, establish a currency board, or dollarize. Recent work by Robert Barro and Alberto Alesina of Harvard University has examined what is behind this trend, notably the decision to join a currency union. Both were recently at the IMF Institute to offer in-house seminars. Prakash Loungani talks with Alesina about why fewer currencies may be a healthy development. The accompanying box summarizes Barro’s seminar on how countries can calculate the costs and benefits of joining a currency union.

Mr. Vito Tanzi

The sensitivity (i.e., elasticity and built-in flexibility) of the U. S. individual income tax to changes in national income is of great interest to researchers and policymakers. However, the direct measurement of this sensitivity—that is, the measurement obtained from time-series observations of the relevant variables—has always been difficult, and even at times impossible, because changes in the legal structure of the tax have been too frequent to provide enough observations that relate to the same legal structure to allow statistically significant coefficients to be determined. This was particularly true in the United States before 1954, when the rates were changed frequently; it has also been true since 1963, when important changes occurred in rates, personal exemptions, deductions, and other features. In contrast, during the period between 1954 and 1963, hardly any significant statutory changes occurred in the tax.

Mr. Vito Tanzi

During the past two or three years, the center of attention on the underground economy has gradually moved from the pages of newspapers into the pages of scholarly reviews. Reflecting this scholarly interest, several books have been published1 and conferences have been organized. The reason for studying the underground economy is self-evident because of the possible influence on economic policies of the distortion of official estimates of such macroeconomic variables as the national accounts, the employment rate, and the rate of inflation if the underground economy is large.2