In the past decade, economists have be-gun to realize that inflation, even when fully anticipated, constitutes a great deal more than a tax on money balances. The primary reason for inflation's wider impact is the existence of a tax system designed with stable prices in mind. This paper offers a brief summary of the effects of inflation on the tax treatment of the firm, focusing on four important decisions the firm makes: the scale of investment; the method of finance; the durability of assets used in production; and the holding period of these assets. There are a number of interesting and related issues which cannot be covered in a paper of this length. As I will be considering inflation that is both uniform and fully anticipated, questions concerning the behavior of the firm in response to uncertainty about inflation, or to a concommitant change in relative prices, will not arise.

While inflation expectations have recently come to play a major role in both macroeconomic theorizing and stabilization-policy analysis, relatively little work has been done to date on testing models that purport to explain how forecasters form inflation anticipations. This paper attempts to begin to fill that lacuna by exploiting data on expected inflation recently published by John Carison (1977a). These data are briefly described in Section I. Section II examines the relationship between inflation expectations and a number of factors commonly believed to influence the actual rate of inflation, such as the money growth rate, a number of fiscalpolicy-related variables, and the unemployment rate. Also considered is the question of whether the expectations generating process has shifted over time. Section III examines the question of whether forecasters efficiently employ available information in generating inflation predictions. The final section summarizes the results and considers the policy-related implications.