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Growth-Friendly Taxation in a High-Inflation Environment

Author

Listed:
  • Áron Kiss
  • Alexander Leodolter
  • Alessandro Turrini
  • István Ványolós

Abstract

Recent EU country-specific recommendations to make taxation more growth-friendly have advocated a stronger use of recurrent taxes on immovable property and a shift of the tax burden from labour income, including a reduction of the labour tax burden of low-income taxpayers. This Brief focuses on challenges related to these two types of tax reforms during periods of high inflation. The challenges linked to immovable property taxation include the update of the property values as well as issues relating to liquidity problems for households with property but relatively low income. Regarding reforms aimed at reducing the labour tax burden on low-income taxpayers, their impact may be challenged by the so-called bracket creep (or fiscal drag) phenomenon, i.e., the shift of taxpayers into higher tax brackets due to an increase of nominal incomes. The present paper highlights the relevance of these issues on the basis of recent empirical evidence and discusses current practices and possible solutions.

Suggested Citation

  • Áron Kiss & Alexander Leodolter & Alessandro Turrini & István Ványolós, 2024. "Growth-Friendly Taxation in a High-Inflation Environment," European Economy - Economic Briefs 079, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecobri:079
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    File URL: https://economy-finance.ec.europa.eu/publications/growth-friendly-taxation-high-inflation-environment_en
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    More about this item

    Keywords

    tax; taxation; tax policy; inflation; immovable property; housing; property value; cadastral value; property valuation; asset-rich cash-poor; liquidity; personal income tax; bracket creep; fiscal drag; indexation;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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