Credit Card Debt Between 1992 and 1995;
Measuring Real Investment Trends in the United States and Abroad;
Inflation, Real Interest Tax Wedges, and Capital Formation;
What Has Become of the 'Stability-Through-Inflation' Argument?
ST. LOUIS, May 8 /PRNewswire/ -- The latest edition of Review, the Federal
Reserve Bank of St. Louis' journal of economic and business issues, features
the following articles:
-- "Still Charging: The Growth of Credit Card Debt Between 1992 and
1995."
In recent years, consumer revolving credit outstanding more than
doubled. This measure of aggregate debt, especially credit card expenditures,
has generated much discussion about its cause, sustainability and
implications. Economist Peter S. Yoo used individual household data from the
1995 Survey of Consumer Finances to update a previous study he did for Review.
He found that the survey data suggest that the changes that have occurred
between 1992 and 1995 reflect a continuing trend. Specifically, the increases
in credit card debt in the last several years are due to higher average credit
card debt per household, not from more households with access to credit cards.
-- "Measuring Real Investment: Trends in the United States and
International Comparisons."
The standard measures of nominal capital formation show that the
proportion of GDP the United States is dedicating to investment has been much
lower than that of other developed countries throughout the last 25 years.
Economists Milka S. Kirova and Robert E. Lipsey calculate a broader real
measure of capital formation that includes household purchases of consumer
durables, current expenditures on education, research and development, and
military capital formation, as well as accounting for the price differences
across countries over time. Their calculations show that U.S. investment has
been close to that of other countries since 1970 and has been an above-average
share of total output during 1990-94. Kirova and Lipsey conclude that,
broadly defined, real capital formation per capita and per worker has not been
lower, but rather 30 percent to 60 percent higher than in the other countries
they studied.
-- "Inflation, Real Interest Tax Wedges, and Capital Formation."
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
investors and the real after-tax interest rate that influences savers.
Economist William G. Dewald argues that reducing the real tax wedge by
eliminating inflation or indexing would stimulate private saving and
nonresidential investment but decrease tax receipts and the tax deductions
that subsidize home ownership.
-- "What Has Become of the 'Stability-Through-Inflation' Argument?"
Economists James B. Bullard and Alvin L. Marty summarize some popular
arguments for positive, steady-state rates of inflation based on the idea that
a certain amount of inflation stabilizes economic performance. Synthesizing a
number of disparate results into a single framework and using a general class
of money-demand functions, they found that the stability-through-inflation
arguments have either been completely replaced or called into question.
Subscriptions to Review are free and can be obtained by calling
314-444-8809. The publication is also available on the Bank's website:
http://www.stls.frb.org.
SOURCE Federal Reserve Bank of St. Louis
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Related links:
http://www.stls.frb.org
CONTACT:
Charles B. Henderson of the Federal Reserve
Bank of St. Louis, 314-444-8311
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