ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -IAS Exam Latest Updates. Inflation Tax is a punishment for having too much cash during a period of excessive inflation. Despite the fact that it is not directly charged by the government. The value of money declines during inflation and cash-carrying individuals will eventually lose some of it.

Detailed explanation-2: -Inflation Is an Added Tax, It’s Just Not Official In the short term, everyone loses from a sustained price rise.

Detailed explanation-3: -An inflation tax is the economic disadvantage suffered by holders of cash and cash equivalents in one denomination of currency due to the effects of inflation, which acts as a hidden tax that subtracts value from currency.

Detailed explanation-4: -Inflation is a hidden tax as it leads to a decrease in the purchasing power of money. It happens particularly when authorities resort to deficit spending when their tax receipts fall behind and their expenditure does not decrease. The taxpayers lose on account of the reduced purchasing power of their money incomes.

Detailed explanation-5: -When a country increases its money supply faster than the supply of goods and services, it can lead to inflation as consumers will be willing to pay more for the goods. With that being said, to answer the question, many economists consider seigniorage as a form of the inflation tax.