Inflation magnifies the distorting effects of taxation when the tax treatment of interest income and expense is not fully indexed to inflation. The distortion involves a real interest tax wedge which is the difference between the real before tax interest rate that influences fully taxed...

William G. Dewald, director of research for the St. Louis Fed, examines how inflation magnifies the distorting effects of taxation when the tax treatment of interest income and expense is not fully indexed to inflation. The distortion involves a real interest tax wedge which is the difference...

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Federal budget deficits continue to dominate discussions of the short-term economic future of the United States. This article by William G. Dewald stands in stark contrast to the aura of pessimism that pervades most such discussions. Dewald’s optimism derives from the inflation adjustment...