Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68957
Authors: 
Immervoll, Herwig
Year of Publication: 
2004
Series/Report no.: 
EUROMOD Working Paper Series EM3/04
Abstract: 
This paper analyses how inflation-induced erosions of nominally defined amounts built into relevant tax rules (“bracket creep”) alter distributional and revenue-generating properties of income taxes and social insurance contributions. Using a multi-country tax-benefit model, it provides quantitative estimates for Germany, the Netherlands and the UK. In the absence of automatic inflation adjustment mechanisms, effects on individual tax burdens can be substantial even with low inflation. Bracket creep is found to reduce tax progressivity. At the same time, overall tax revenues increase. This second effect more than compensates for the decline in progressivity and leads to an overall increase of relevant redistribution measures. Existing adjustment regimes used in the Netherlands and the UK are successful at preventing large tax burdens changes resulting from inflation-induced nominal income changes.
Subjects: 
Inflation
Fiscal Drag
Income Tax
Social Insurance Contributions
Income Distribution
European Union
Microsimulation
JEL: 
C81
H24
D31
Document Type: 
Working Paper

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