Inflation, nominal portfolios, and wealth redistribution in Canada

Inflation, nominal portfolios, and wealth redistribution in Canada

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Article ID: iaor201111986
Volume: 44
Issue: 4
Start Page Number: 1369
End Page Number: 1402
Publication Date: Nov 2011
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: ,
Keywords: government
Abstract:

This paper quantifies the redistributional effects of inflation in Canada that arise through the revaluation of nominal assets and liabilities. We find that the effects are non‐trivial even for low inflation episodes. The main winners are young, middle‐class households with mortgage debt. The government receives a windfall gain from its long‐term debt. The old, the rich or the middle‐aged, middle‐class lose, largely owing to their holdings of bonds and non‐indexed defined benefit pension assets. Finally, our Canada‐U.S. comparison reveals that the extent of redistributions can be quite different even between countries of similar economic and legal environments.

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