Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/168032
Authors: 
Altemeyer-Bartscher, Martin
Zeddies, Götz
Year of Publication: 
2017
Series/Report no.: 
IWH Discussion Papers 29/2016
Abstract: 
As taxpayers typically pay low attention to a small inflation-induced bracket creep of the income tax, policy-makers tend to postpone its correction into the future. However, the fiscal illusion fades away and political pressure for a tax relief arises since after some years the cumulative increase of the average tax rate exceeds a critical threshold. Using Germany as an example, this paper shows that bracket creeps can provoke revenue cycles in public budgets hindering governments' compliance with the numerical budget rules. An indexation of the tax tariff could prevent such fluctuations and thus provides a favourable framework for the debt rule.
Subjects: 
progressive income taxes
bracket creep
political budget cycles
debt brake
JEL: 
H24
H31
H63
Document Type: 
Working Paper

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