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Impact of Inflation on Fiscal Aggregates in Austria

Author

Listed:
  • Doris Prammer

    (Oesterreichische Nationalbank)

  • Lukas Reiss

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

In Austria, temporary shocks to inflation (with unchanged real macroeconomic developments) impact the primary balance, i.e. the overall budget balance excluding interest payments, mainly via taxes and transfers whose brackets or rates are not indexed to inflation. Even though the overall effect of such shocks on budget balances would be very small in Austria, below-average inflation, for example, is still negative from a government’s viewpoint because it significantly raises the public debt ratio. Lower inflation moreover depresses the gains made from both bracket creep and the devaluation of nominally fixed transfers, which is, however, somewhat compensated for by decreasing interest payments. Households, by contrast, benefit from lower inflation as it causes their net tax burden to go down.

Suggested Citation

  • Doris Prammer & Lukas Reiss, 2015. "Impact of Inflation on Fiscal Aggregates in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 27-41.
    • Handle: RePEc:onb:oenbmp:y:2015:i:1:b:3
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    File URL: https://www.oenb.at/dam/jcr:9744bd80-5752-4c05-bd97-8229511210fb/mop_2015_q1_analyses3.pdf
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    References listed on IDEAS

    as
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    3. Doris Prammer & Lukas Reiss, 2014. "Fiscal Projections by the Oesterreichische Nationalbank: Methods and Motives," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 31-48.
    4. 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.
    5. Mr. Bernardin Akitoby & Mr. Takuji Komatsuzaki & Mr. Ariel J Binder, 2014. "Inflation and Public Debt Reversals in the G7 Countries," IMF Working Papers 2014/096, International Monetary Fund.
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    Cited by:

    1. N. N., 2015. "WIFO-Monatsberichte, Heft 5/2015," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(5), May.
    2. Olegs Tkacevs & Karsten Staehr & Katri Urke, 2023. "Fiscal Performance under Inflation and Inflation Surprises: Evidence from Fiscal Reaction Functions for the Euro Area," Working Papers 2023/04, Latvijas Banka.
    3. Peter Brandner, 2015. "Anmerkungen zur kalten Progression und ihrer Berechnung," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(5), pages 463-471, May.

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    More about this item

    Keywords

    bracket creep; inflation indexation; Austria; social benefits;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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