Book contents
- Frontmatter
- Contents
- Preface
- 1 Inflation and personal income taxation: an introduction to the main issues
- 2 Inflation and the real progression of the rates: problems and solutions
- 3 Inflation and the real progression of the rates: countries' experiences
- 4 Inflation and the taxation of capital gains: problems and solutions
- 5 Inflation and the taxation of interest income: problems and solutions
- 6 Inflation and the taxation of business incomes
- 7 Inflation, lags in collection, and the real value of income tax revenue
- 8 Sensitivity of personal income tax yield to income changes: theory and measurement
- 9 Indexing the personal income tax for inflation and real growth
- 10 Inflation, income taxes, and the equilibrium rate of interest: theory
- 11 Inflation, income taxes, and interest rates: some empirical results
- 12 Inflation, indexation, and the wage-tax spiral
- 13 Some general conclusions on indexation
- Notes
- Index
2 - Inflation and the real progression of the rates: problems and solutions
Published online by Cambridge University Press: 07 October 2011
- Frontmatter
- Contents
- Preface
- 1 Inflation and personal income taxation: an introduction to the main issues
- 2 Inflation and the real progression of the rates: problems and solutions
- 3 Inflation and the real progression of the rates: countries' experiences
- 4 Inflation and the taxation of capital gains: problems and solutions
- 5 Inflation and the taxation of interest income: problems and solutions
- 6 Inflation and the taxation of business incomes
- 7 Inflation, lags in collection, and the real value of income tax revenue
- 8 Sensitivity of personal income tax yield to income changes: theory and measurement
- 9 Indexing the personal income tax for inflation and real growth
- 10 Inflation, income taxes, and the equilibrium rate of interest: theory
- 11 Inflation, income taxes, and interest rates: some empirical results
- 12 Inflation, indexation, and the wage-tax spiral
- 13 Some general conclusions on indexation
- Notes
- Index
Summary
In this chapter, we assume that the only inflation-induced distortion in the personal income tax system is caused by the progressivity. In particular, we assume that (1) either there is no capital income problem, or (2) that capital incomes have already been adjusted. We also ignore the issue of collection lags. In this way we can focus on one basic aspect of the problem: the fact that inflation pushes taxpayers into brackets levied with higher tax rates even when their real income has not changed.
Effects of inflation on personal income tax liability
In most countries, personal incomes above certain exempted levels are taxed with progressive statutory rates. These rates apply to income brackets specified in money terms in the tax legislation. Personal exemptions, as well as some of the deductions or tax credits, are also fixed in current values. Such a legal structure for the personal income tax guarantees that, in the absence of evasion, higher taxable incomes will be subjected to higher average tax rates. This feature has generally been considered desirable from both an equity and a stabilization point of view: because it promotes the objective of income redistribution and conforms to the principle of ability to pay; and because the progressivity of the income tax generally increases its built-in-flexibility and this increase is supposed to moderate cyclical fluctuations.
- Type
- Chapter
- Information
- Inflation and the Personal Income TaxAn International Perspective, pp. 13 - 22Publisher: Cambridge University PressPrint publication year: 1980