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The Impact of Inflation on Income Tax and Social Insurance Contributions in Europe

Author

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  • Herwig Immervoll

    (University of Cambridge; European Centre for Social Welfare Policy & Research - Vienna)

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.

Suggested Citation

  • Herwig Immervoll, 2003. "The Impact of Inflation on Income Tax and Social Insurance Contributions in Europe," Public Economics 0302004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0302004
    Note: Type of Document - ; figures: included. EUROMOD web-site:
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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, vol. 66(2), pages 193-199, May.
    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 sobre el ingreso personal en función de la inflac," IMF Staff Papers, Palgrave Macmillan, vol. 22(2), pages 539-564, July.
    3. O'Donoghue, Cathal & Sutherland, Holly & Immervoll, Herwig, 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. Herwig Immervoll, 2006. "Fiscal Drag – An Automatic Stabiliser?," Research in Labor Economics, in: Micro-Simulation in Action, pages 141-163, Emerald Group Publishing Limited.
    2. Abdul Qadir Patoli & Tayyab Zarif & Nadeem A. Syed, 2012. "Impact Of Inflation On Taxes In Pakistan: An Empirical Study Of 2000-2010 Period," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 8(2), pages 8-4.
    3. 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.
    4. Liu, Kai & Poplawski-Ribeiro, Marcos, 2015. "Short- and Long-Run Fiscal Elasticities: International Evidence," MPRA Paper 65950, University Library of Munich, Germany.
    5. Kurauone, Ophias & Kong, Yusheng & Sun, Huaping & Muzamhindo, Simbarashe & Famba, Takuriramunashe & Taghizadeh-Hesary, Farhad, 2021. "The effects of International Financial Reporting Standards, auditing and legal enforcement on tax evasion: Evidence from 37 African countries," Global Finance Journal, Elsevier, vol. 49(C).
    6. Abdul Qadir Patoli & Tayyab Zarif & Nadeem A.Syed, 2012. "Impact Of Inflation On Taxes In Pakistan: An Empirical Study Of 2000-2010 Period," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 8(2), pages 31-41.
    7. Sutherland, Holly & Mantovani, Daniela & Immervoll, Herwig & Levy, Horacio & Lietz, Christine & Feres, Patricio, 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.
    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. Tim Callan & Kieran Coleman & John Walsh, 2006. "Assessing the Impact of Tax/Transfer Policy Changes on Poverty: Methodological Issues and Some European Evidence," Research in Labor Economics, in: Micro-Simulation in Action, pages 125-139, Emerald Group Publishing Limited.
    10. Kai Liu, 2014. "Public Finances, Business Cycles and Structural Fiscal Balances," Cambridge Working Papers in Economics 1411, Faculty of Economics, University of Cambridge.
    11. Beier, David, 2009. "Regionale Effekte der Einkommensteuerreform," Forschungs- und Sitzungsberichte der ARL: Aufsätze, in: Mäding, Heinrich (ed.), Öffentliche Finanzströme und räumliche Entwicklung, volume 127, pages 49-74, ARL – Akademie für Raumentwicklung in der Leibniz-Gemeinschaft.
    12. Timm Bönke & Giacomo Corneo, 2006. "Was hätte man sonst machen können? Alternativszenarien zur rot-grünen Einkommensteuerreform," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(4), pages 489-519.
    13. 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.
    14. 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.

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    Keywords

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    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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