James S. Duesenberry

The Brookings model : some further results

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Inflation and Income Distribution

It has for a long time been recognised that inflation, and especially unanticipated inflation, causes changes in income distribution. In particular, it has often been pointed out how, in an unanticipated inflation, holders of assets demoninated in nominal terms will suffer. Other groups, especially pensioners, whose nominal incomes are fixed, also lose in times of inflation. Other discussions centre on the lag structure of wage and price responses, which can produce shifts in the income distribution as between wages and profits. More recently attention has been directed toward the distributional effects of tax systems with progressive rate structures stated in nominal terms. When such a tax system is operative, inflation can produce income losses to groups paying the higher marginal tax rates. The distribution of the offsetting gain depends, of course, on the actions of the government whose revenue has been increased.

The Co-Ordination of Policies for full Employment and Price Stability

The task of co-ordinating policies for the maintenance of full employment and a stable price level is not an easy one in the best of circumstances. It is not made any easier by the generally polemical atmosphere in which discussions of alternative policies have usually proceeded. Such discussions are centred on a double dichotomy between two approaches to the cause of inflation and between value judgments as to the relative importance to be attached to inflation and to unemployment. At the risk of distorting and oversimplifying some people’s views, it seems worth while to begin the discussion by outlining briefly some approaches to the problem of the relation between full employment policy and price stabilization policy.