5  Interestingly, the larger the burden coming from the interaction of inflation and the capital income tax, the more government tax revenues will fall when inflation is reduced.
Feldstein (1997, 1999) provides a quantitative assessment of the benefits of price stability based on the interaction of inflation and the tax system, showing that a lower average inflation rate stimulates investment by reducing the effective tax on capital income. 6  Because real money balances bear no interest, the opportunity cost of holding them is the nominal rate of interest.