Tax Distortions from Inflation: What are They? How to Deal with Them?

Tax Distortions from Inflation: What are They? How to Deal with Them?
READ MORE...
Volume/Issue: Volume 2023 Issue 018
Publication date: January 2023
ISBN: 9798400232503
$0.00
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
English
Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Inflation , Investments and Securities-General , Labor , Economics- Macroeconomics , Taxation - General , Economics / General , Tax policy , inflation , bracket creep , , expected inflation , NPV of depreciation , impact of inflation , tax distortions from inflation , savings income , cost of capital , rate of return , Depreciation , Income tax systems , Non-wage benefits , Income , Africa , Global

Summary

Expected inflation has few real effects in purely private economies, but this is not the case when the tax system is not neutral with respect to inflation. In practice, tax systems are not neutral—though some have attempted to be so in the past—and this paper provides a comprehensive overview of the most relevant non-neutralities drawing both on existing literature and showing new illustrations and evidence of the effects. The paper shows, for example, how taxing inflationary gains can have tremendous impact on effective tax rates—even at relatively low rates of inflation. It also shows how partial adjustment—for only some types of incomes—can create additional distortions. A new empirical analysis reveals how the erosion of the value of depreciation allowances through inflation affects investment. Finally the paper discusses policy options to address such non-neutralities.