Simulating the impact of inflation on the progressivity of personal income tax in Brazil
AbstractIncome tax reform proposals in Brazil have focused almost exclusively on changes in rates, aiming at increasing its progressivity. One important aspect that has been overlooked is the fact that, in the absence of a mechanism that adjusts the tax rules to price movements, the effects of inflation on the level and distribution of the income tax burden can be substantial, even in periods of low inflation (“bracket creep”, fiscal drag). Moreover, how inflation affects the progressivity of the income tax depends on the specifics of the tax structure. Making use of a tax-benefit microsimulation model for Brazil (BRAHMS), we simulate different scenarios regarding the level of inflation and the adjustment of the income tax rules in order to assess the potential revenue and distributive effects of inflation on the income tax in Brazil. Our findings suggest that the Brazilian income tax is quite sensitive to fiscal drag. If the income tax is not adjusted for inflation, progressivity would decrease but redistribution would increase due to a larger tax burden. However, as income tax revenue and redistribution are quite low, even after relatively high levels of inflation, the tax burden and income inequality would not substantially change.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its journal Revista Brasileira de Economia.
Volume (Year): 64 (2010)
Issue (Month): 4 (December)
Contact details of provider:
Postal: Praia de Botafogo 190, sala 1100, Rio de Janeiro/RJ - CEP: 22253-900
Web page: http://epge.fgv.br
More information through EDIRC
Other versions of this item:
- Levy, Horacio & Nogueira, José Ricardo & Bezerra de Siqueira, Rozane & Immervoll, Herwig & O’Donoghue, Cathal, 2008. "Simulating the impact of inflation on the progressivity of personal income tax in Brazil," LATINMOD Working Papers Series 2008-01, Tecnológico de Monterrey, Campus Ciudad de México.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Durevall, Dick, 1998.
"Inertial Inflation, Indexation and Price Stickiness: Evidence from Brazil,"
Working Papers in Economics
8, University of Gothenburg, Department of Economics.
- Durevall, Dick, 1999. "Inertial inflation, indexation and price stickiness: evidence from Brazil," Journal of Development Economics, Elsevier, vol. 60(2), pages 407-421, December.
- Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G. & Gerfin, Michael & Gross, Lorna & Hakinnen, Unto, 1999. "Redistributive effect, progressivity and differential tax treatment: Personal income taxes in twelve OECD countries," Journal of Public Economics, Elsevier, vol. 72(1), pages 73-98, April.
- Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
- Herwig Immervoll & Horacio Levy & JosÃ© Ricardo Nogueira & Cathal OÂ´Donoghue & Rozane Bezerra de Siqueira, 2005.
"The Impact of BrazilÂ´s Tax-Benefit System on Inequality and Poverty,"
Ibero America Institute for Econ. Research (IAI) Discussion Papers
117, Ibero-America Institute for Economic Research.
- Immervoll, Herwig & Levy, Horacio & Nogueira, José Ricardo & O'Donoghue, Cathal & Siqueira, Rozane Bezerra de, 2006. "The Impact of Brazil's Tax-Benefit System on Inequality and Poverty," IZA Discussion Papers 2114, Institute for the Study of Labor (IZA).
- Plotnick, Robert, 1981. "A Measure of Horizontal Inequity," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 283-88, May.
- Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
- Martin S. Feldstein, 1997.
"The Costs and Benefits of Going from Low Inflation to Price Stability,"
in: Reducing Inflation: Motivation and Strategy, pages 123-166
National Bureau of Economic Research, Inc.
- Martin Feldstein, 1996. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Working Papers 5469, National Bureau of Economic Research, Inc.
- Rozane Bezerra de Siqueira & JosÃ© Ricardo Nogueira & Cathal O'Donoghue, 2003. "Simulating Brazil Tax-Benefit System Using Brahms, the Brazilian Household Microsimulation Model," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting], ANPEC - AssociaÃ§Ã£o Nacional dos Centros de PÃ³sgraduaÃ§Ã£o em Economia [Brazilian Association of Gr b50, ANPEC - AssociaÃ§Ã£o Nacional dos Centros de PÃ³sgraduaÃ§Ã£o em Economia [Brazilian Association of Graduate Programs in Economics].
- Emmanuel Saez, 1999.
"Do Taxpayers Bunch at Kink Points?,"
NBER Working Papers
7366, National Bureau of Economic Research, Inc.
- Jean-Yves Duclos, 2000. "Gini Indices and the Redistribution of Income," International Tax and Public Finance, Springer, vol. 7(2), pages 141-162, March.
- Maurício Cortez Reis & Gabriel Ulyssea, 2005. "Cunha Fiscal, Informalidade e Crescimento : Algumas Questões e Propostas de Políticas," Discussion Papers 1068, Instituto de Pesquisa Econômica Aplicada - IPEA.
- Immervoll, H., 2000. "Fiscal Drag - An Automatic Stabiliser?," Cambridge Working Papers in Economics 0025, Faculty of Economics, University of Cambridge.
- Aronson, J Richard & Johnson, Paul & Lambert, Peter J, 1994. "Redistributive Effects and Unequal Income Tax Treatment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(423), pages 262-70, March.
- Herwig Immervoll, 2005. "Falling Up The Stairs: The Effects Of "Bracket Creep" On Household Incomes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(1), pages 37-62, 03.
- Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 87(345), pages 71-80, March.
- Luiz Carlos Bresser Pereira, 1991. "A lógica perversa da estagnação: dívida, déficit e inflação no Brasil," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 45(2), pages 187-212, April.
- Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Núcleo de Computação da EPGE).
If references are entirely missing, you can add them using this form.