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Income tax progressivity and inflation during the world wars
[War finance and inflation in Britain and Germany, 1914–1918]

Author

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  • Sara Torregrosa-Hetland
  • Oriol Sabaté

Abstract

This paper studies the impact of inflation on income taxes in Sweden, the UK, and the United States during the world wars. As tax reforms were rising top marginal rates and reducing exemption thresholds, extraordinary levels of inflation eroded the real value of exemptions, brackets, and deductions. The micro-simulation of actual and alternative scenarios shows that inflation made the tax less progressive, particularly in Sweden during World War I and the UK during World War II. Nevertheless, its redistributive effect increased due to the related growth in tax revenue. Inflation contributed to transform a “class tax’’ into a “mass tax”.

Suggested Citation

  • Sara Torregrosa-Hetland & Oriol Sabaté, 2022. "Income tax progressivity and inflation during the world wars [War finance and inflation in Britain and Germany, 1914–1918]," European Review of Economic History, European Historical Economics Society, vol. 26(3), pages 311-339.
    • Handle: RePEc:oup:ereveh:v:26:y:2022:i:3:p:311-339.
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