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The impact of inflation on income tax and social insurance contributions in Europe

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  • Immervoll, Herwig

Abstract

Inflation can alter the characteristics of tax- and contribution systems in numerous ways. This paper demonstrates how inflation alters the distributive properties of nominally defined tax systems and looks at the impact of the tax revenues and social insurance contribution receipts generated. It provides quantitative estimates for Germany, The Netherlands and the UK, using a preliminary version of EUROMOD, a European tax-benefit microsimulation model. The integrated framework provided by the model permits the use of common income concepts across countries and therefore enables one to make informative comparisons of the distributive consequences of the inflation induced erosion of tax- band limits, thresholds, deductions, tax credits, etc. The paper also tests the performance of automatic indexing regimes used in two of the countries.
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Suggested Citation

  • Immervoll, Herwig, 2000. "The impact of inflation on income tax and social insurance contributions in Europe," EUROMOD Working Papers EM2/00, EUROMOD at the Institute for Social and Economic Research.
  • Handle: RePEc:ese:emodwp:em2-00
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    File URL: https://www.iser.essex.ac.uk/research/publications/working-papers/euromod/em2-00.pdf
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    References listed on IDEAS

    as
    1. Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, pages 193-199.
    2. Amalio Humberto Petrei, 1975. "Inflation Adjustment Schemes under the Personal Income Tax (Méthodes d'ajustement de l'impôt sur le revenu des personnes physiques pour tenir compte de l'inflation) (Sistemas de ajuste del impuesto ," IMF Staff Papers, Palgrave Macmillan, vol. 22(2), pages 539-564, July.
    3. Sutherland, Holly & Immervoll, Herwig & O'Donoghue, Cathal, 1999. "An introduction to EUROMOD," EUROMOD Working Papers EM0/99, EUROMOD at the Institute for Social and Economic Research.
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    Citations

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    Cited by:

    1. Kai Liu, 2014. "Public Finances, Business Cycles and Structural Fiscal Balances," Cambridge Working Papers in Economics 1411, Faculty of Economics, University of Cambridge.
    2. Feres, Patricio & Immervoll, Herwig & Lietz, Christine & Levy, Horacio & Mantovani, Daniela & Sutherland, Holly, 2002. "Indicators for social inclusion in the European Union: how responsive are they to macro-level changes?," EUROMOD Working Papers EM3/02, EUROMOD at the Institute for Social and Economic Research.
    3. Immervoll, H., 2000. "Fiscal Drag - An Automatic Stabiliser?," Cambridge Working Papers in Economics 0025, Faculty of Economics, University of Cambridge.
    4. João Sousa Andrade & António Portugal Duarte, 2011. "The Portuguese Public Finances and the Spanish Horse," GEMF Working Papers 2011-21, GEMF, Faculty of Economics, University of Coimbra.
    5. Beier, David, 2009. "Regionale Effekte der Einkommensteuerreform," Forschungs- und Sitzungsberichte der ARL: Aufsätze,in: Öffentliche Finanzströme und räumliche Entwicklung, pages 49-74 Akademie für Raumforschung und Landesplanung (ARL) - Leibniz-Forum für Raumwissenschaften.
    6. Sutherland, Holly, 2001. "EUROMOD: an integrated European benefit-tax model: final report," EUROMOD Working Papers EM9/01, EUROMOD at the Institute for Social and Economic Research.
    7. Liu, Kai & Poplawski-Ribeiro, Marcos, 2015. "Short- and Long-Run Fiscal Elasticities: International Evidence," MPRA Paper 65950, University Library of Munich, Germany.
    8. Francesca Gastaldi & Paolo Liberati & Chiara Rapallini, 2008. "A Decomposition of the Personal Income Tax Changes in Italy: 1995-2000," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 87-114, March.
    9. Herwig Immervoll, 2003. "The Impact of Inflation on Income Tax and Social Insurance Contributions in Europe," Public Economics 0302004, EconWPA.
    10. Callan, Tim & Keeney, Mary J. & Nolan, Brian & Walsh, John R., 2001. "Reforming Tax and Welfare," Research Series, Economic and Social Research Institute (ESRI), number PRS42.

    More about this item

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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