In this paper, we examine the relationship between inflation, tax and economic growth by using autoregressive distributed lags (ARDL) model. Seigniorage or income that the government obtains by printing money consists of two parts. The first part of the income is obtained without causing inflation and the second part is the inflation tax or income that government obtains by inflation. We find that inflation tax also has a negative effect on economic growth. The ratio of investment to GDP and growth of oil revenues are directly related to economic growth. Results from the Error Correction Model (ECM) shows that if a deviation from the long-term equilibrium occurs, moving toward a long-term equilibrium is oscillatory.

Keywords: Inflation Tax, Economic Growth, Autoregressive Distributed Lags (ARDL) Model

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