Success or Failure of Tight Policy against Inflation.

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: Success or Failure of Tight Policy against Inflation.

Author:: Steindl, Josef

Scope:: Typoskript, 7 Blätter, 7 Seiten

Year of publication:: ohne Datum

Language:: English

Description:: " In other words various types of restricitve policy [monetary or fiscal tightness] may be contradictory in relation to various aims. The high interest policy [...] will lead to higher budget deficits. [...] On the other hand, a policy of increasing taxation [...] will raise prices and wages and so facilitate the continuing merry go round of prices shifted to wages and vice versa. In fact, in an inflationary process the budget policy is continuously faced with the choice of either passing on their increased cost, or letting the deficit rise."(Auszug, S. 1-2)

Note:: Unveröffentlichtes Typoskript.

Topic:: Economic policy

JEL Classification:: E31 [Price Level, Inflation, Deflation] E52 [Monetary Policy] E62 [Fiscal Policy]

Shelfmark:: S/M.75.1

Access:: Free access

2 vice versa. In fact, in an inflationary process the budget policy is continuously faced with the choice of either passing on their increased cost, or letting the deficit rise. I shall now discuss the development of inflation in the 70'ies especially since the recession 1974/75. I shall start from a certain inflation rate which was already existing and try to explain acceleration and especially the persistence of high rates of inflation over that time. The theoretical basis behind it is quite simple. I assume that cost increases are shifted on to prices by means of a mark-up. In general a mark-up is applied to direct costs (wages and materials). Under certain circumstances also an increase in fixed cost due to under-utilization is passed on to the buyer. Thus a price increase may result from increases in wage cost, in materials prices, in imported goods, or in indirect taxes. The wage cost result from changes in wages and in productivity I assume further that increases in prices are shifted on to wages in the next round: Thus when trade unions bargain for a certain real wage target they will base their calculation on the idea that the price (cost of living) increase of the last period must be compensated in the nominal wage increase. The bargaining may take into account "take home pay" and then also increases in direct taxes are shifted on.

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