Inflation and Inflation Tax in Iran: A Threshold Regression ‘Laffer Curve’ Model

Abstract

The purpose of this paper is examining the Laffer curve for inflation tax. To do so we have used Hansen (1996, 2000), threshold regression model to study whether a non-linear relationship between inflation Tax and inflation based on two regimes of inflation (low and high inflation regimes). Our findings support a standard Laffer curve shape in Iran with a threshold inflation rate of 15.24 percentage points. In other words, only at inflation below this rate inflation tax will increase as a result of higher inflation