Additionally, the effective tax rate in many countries can be significantly lower than the nominal rate.
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However, an increase in the real exchange rate need not require a rise in the nominal rate.
Further, the depreciation of capital is more lucrative the higher the nominal rate.
From 1984 to 2007, the US monetary base grew at 6.6% per year, a shade more than the nominal rate of the economy.
If the British government can raise finance at a nominal rate of 2%, and a real rate of zero, surely it makes sense for it to finance these projects directly?
That would put the real, inflation-adjusted interest rate the cost of borrowing minus the rate of inflation deep into negative territory, even though the nominal rate would still be zero.
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It takes effect in three years, and if lawmakers opt to resume taxing dividends like interest presumably at a 39.6% rate that would push the top nominal rate on dividends above 43% in 2013.
But you have to wonder whether it will also turn out to be another step towards a post-crisis world of monetary policy, where the nominal rate of inflation is no longer the target of choice.
Remaining consistent with this principle, Brian argues that when the Fed Funds rate (the rate set by the Fed) is lower than the nominal growth rate, the Fed is inflationary, and when the Fed Funds rate is higher than the nominal rate, the Fed is deflationary.
Although the interest rate is 0% to 0.1%, average deflation of -1.3% in the past 15 years means that the real interest rate (nominal interest rate 0% minus the price change of -1.3%) is a positive 1.3%.
So, if we observe an economy, in which the interest rate was below the nominal growth rate and inflation was not increasing what might we conclude?
In theory the natural rate will tend towards the expected nominal growth rate of the economy, so you want to keep that at zero.
When inflation rises, for instance, bondholders will expect a higher nominal interest rate on new debt.
So a 3.2% nominal growth rate in wages and salaries translates into virtually no growth after inflation.
If you have 5% inflation along with 3% real growth, you get a nominal growth rate of 8%.
Some suggest the Swiss ought to announce a peg to the euro or engineer a negative nominal interest rate.
In 2004, Portugal's economy grew by 1%, Ireland's by almost 5%, but both had the same nominal interest rate.
Lord North particularly liked them because they carried a low nominal interest rate.
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The problem for investors comes when real interest rates are negative, when the nominal interest rate won't keep up with inflation.
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Even when gift and estate taxes carry the same nominal tax rate, paying the gift tax works out to be cheaper than paying the estate tax.
With the nominal exchange rate held down by intervention, this could only come about through a rise in prices, creating expectations of future inflation and so reducing real interest rates.
Because all member states share the same nominal interest rate, slow-growing economies with lower inflation, such as Germany and Italy, have higher real interest rates than fast growers, such as Spain and Greece.
This week, the Nihon Keisai, Japan's main business daily, reported that the mandarins want to eliminate many tax exemptions, such as those for loss-making companies and reserves set aside for bonuses, to offset the proposed 2.5 percentage point reduction in the nominal tax rate.
My good friend and sometime mentor, Brian Wesbury, argues that the natural rate of interest is the same as the nominal GDP growth rate.
U.S. corporate profits (which are expressed in nominal terms) have tended to rise and fall at about twice the rate of world nominal dollar GDP, suggesting double-digit profit growth again in 2006.
It wants the administration to lower the 35% (nominal) corporate tax rate through tax reform.
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There is no problem running a deficit so long as it is lower (as a percent of GDP) than our rate of nominal GDP growth.
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In central and eastern Europe too, where loans rose at twice the rate of nominal GDP between 2000 and 2007, they hit a brick wall in 2008 as overextended banks ran out of funding and bad debts mounted.
Despite nominal improvements in the unemployment rate, the U.S. Department of Agriculture counts more than 47 million people in its food stamp program nearly one out of every seven Americans.
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