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Quantifying the impact of the 2021–22 inflation shock on Austria’s public finances

Author

Listed:
  • Johannes Holler

    (Oesterreichische Nationalbank, Economic Analysis Division)

  • Lukas Reiss

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

Higher inflation tends to contribute to higher growth in nominal government revenue, but its overall effect on public finances is ambiguous. We show that while the current inflation shock has a small positive short-run effect on the budget balance, it is clearly detrimental to public finances in the medium to long run. The decline in real economic growth caused by the current inflationary shock aggravates its budgetary impact further. In addition, our results highlight that the recently introduced inflation indexation of income tax brackets and family benefits substantially contributes to the negative impact of higher inflation on public finances.

Suggested Citation

  • Johannes Holler & Lukas Reiss, 2023. "Quantifying the impact of the 2021–22 inflation shock on Austria’s public finances," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/22-Q1/, pages 117-130.
    • Handle: RePEc:onb:oenbmp:y:2023:i:q4/22-q1/23:b:9
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    References listed on IDEAS

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    1. Johannes A. Schwarzer, 2018. "Retrospectives: Cost-Push and Demand-Pull Inflation: Milton Friedman and the "Cruel Dilemma"," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 195-210, Winter.
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    More about this item

    Keywords

    inflation; budget balance;

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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