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Tax Increases Via the Back Door – Fiscal Revenue Impact of Bracket Creep

Author

Listed:
  • Florian Dorn
  • Clemens Fuest
  • Björn Kauder
  • Luisa Lorenz
  • Martin Mosler
  • Niklas Potrafke
  • Luisa Dörr

Abstract

Bracket creep (cold progression) weakens the distribution effects of the taxation system and leads to an increase in the tax burden that is no longer under democratic control. In public debates bracket creep is usually only discussed in the narrowest sense of the term, which only takes into account the impact of rising prices. This led to additional tax revenues of 33.5 billion euros over the period of 2011 to 2016. The extent of bracket creep, however, becomes considerably larger if the effect of rising real income is also taken into account. On this basis, total additional tax revenues of 70.1 billion euros were generated between 2011 and 2016. Without further amendments to German law, bracket creep will increase successively if one considers the period through 2030. In response to bracket creep, the authors propose tax rate indexation in the form of a rolling rate.

Suggested Citation

  • Florian Dorn & Clemens Fuest & Björn Kauder & Luisa Lorenz & Martin Mosler & Niklas Potrafke & Luisa Dörr, 2017. "Tax Increases Via the Back Door – Fiscal Revenue Impact of Bracket Creep," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(02), pages 51-58, January.
    • Handle: RePEc:ces:ifosdt:v:70:y:2017:i:02:p:51-58
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    References listed on IDEAS

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    Cited by:

    1. Heinz Gebhardt & Lars-H. R. Siemers, 2018. "Zur strukturellen Finanzlage der Laender: eine aktuelle Auswertung und Methodenkritik," MAGKS Papers on Economics 201837, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Florian Dorn & Clemens Fuest & Fabian Häring & Björn Kauder & Luisa Lorenz & Martin Mosler & Luisa Dörr, 2017. "Eliminating the Middle-class Bulge – Income Tax Reform Options and their Fiscal Costs," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(09), pages 31-38, May.
    3. FlorianDorn & ClemensFuest & BjörnKauder & LuisaLorenz & MartinMosler & NiklasPotrafke & LuisaDörr, 2018. "How Bracket Creep Creates Hidden Tax Increases: Evidence from Germany," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(04), pages 34-39, January.
    4. Maximilian Joseph Blömer & Luisa Dörr & Clemens Fuest & Martin Mosler & Andreas Peichl & Niklas Potrafke, 2019. "Was bei einer Reform des Solidaritätszuschlags zu beachten ist," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(16), August.
    5. Dieter Dziadkowski, 2018. "Plea for a Realistic Income Tax Rate Structure," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(11), pages 35-47, June.
    6. Florian Dorn & Clemens Fuest & Björn Kauder & Luisa Lorenz & Martin Mosler & Niklas Potrafke & Luisa Dörr, 2017. "How Bracket Creep Creates Hidden Tax Increases: Evidence from Germany," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(04), pages 34-39, December.
    7. Florian Dorn & Clemens Fuest & Björn Kauder & Luisa Lorenz & Martin Mosler & Potrafke. Niklas & Luisa Dörr, 2017. "Bracket Creep – Distribution Effects of a Rolling Income Tax Rate," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(03), pages 28-39, February.
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