"inflation is taxation by wealth" says moondoong. but akg says no as it "doesnt increase government revenue in real value".
I presume akg you mean in real terms.
Let's see. The usual cause of inflation is increasing the supply of money. If you have to be pedantic, increasing the supply of money at a greater rate than the economic growth. The higher the increase in the money supply vs the rate of economic growth can give an indication of how high inflation will be.
Great increases in money supply will lead to hyperinflation. Hyperinflation (e.g. Zimbabwe, Argentina, Germany in the early 1920s) tends to kill an economy and it usually only gets back to some sort of stability after a default and a new stable currency.
Now does inflation increase tax revenue? The short answer is yes. People move up (bracket creep) into higher taxation levels and goods and services cost more so the GST revenue etc. is increased. Inflation also encourages a move towards the riskier assets, e.g. those assets that can maintain their value, so there is increased activity in the housing sector with its related taxes and greater activity in shares.
Does inflation increase government revenue in real terms? I would answer yes. It encourages activity in areas where government traditionally taxes. Inflation also 'decreases' in real terms the amount of debt and let's face it no one borrows quite like governments can. In addition, an important point often missed is inflation favours those that get access to the money first, before the full effects of that extra money is felt in higher prices. So inflation favours governments and banks. Those worse off by inflation are the general public who get access to this extra money last and always after prices have increased.
