The Fisher Hypothesis, International Capital Markets and Taxes on Nominal Capital Gains

Abstract

The paper extends to the closed economy the framework devised by Hansson and Stuart (1986) to analyze the interaction of inflation and taxation on the nominal rate of interest in a financially open economy. The paper generalizes Hansson and stuart and shows that their finding of a possible non-neutrality in inflation when international capital flows are introduced hinges upon the tax treatment of nominal capital gains, not specifically on whether the economy is financially closed or open. [023]