ABSTRACT
One of the most popular but controversial issues in the literature relating to interest rates is the relationship between expected inflation and interest rates. This relationship was first articulated by Fisher (1930) in a concrete form. Briefly, this states that in the long run, nominal interest rates will change one-for-one for a given change in expected inflation. This prediction, however, holds only when there are no taxes. This prediction is changed to a greater than unity effect once taxes on interest income are included (see Darby (1975) and Feldstein (1976)).
