By Vito Tanzi
Inflation distorts source of revenue taxes in lots of methods, yet essentially through redistributing the tax burden between taxpayers. This learn analyses intimately the results of inflation on source of revenue tax platforms in lots of international locations. It examines a number of the extra very important distortions of source of revenue tax structures attributable to inflation and discusses attainable corrective measures, starting from computerized changes (indexation) to advert hoc responses. those corrective measures are in comparison with the particular stories of many nations that experience pursued guidelines aimed toward neutralizing the consequences of inflation. by means of treating the matter of inflation and source of revenue taxes in a accomplished demeanour and from a world standpoint, this ebook fills an immense hole within the source of revenue tax literature and may turn out invaluable to specialist economists, coverage makers keen on tax difficulties, tax attorneys and accountants.
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Additional resources for Inflation and the Personal Income Tax: An International Perspective
A further increase of the personal allowance was announced in March 1 974 to take effect from July 1 974. For 1 976, the adjustment for inflation was used again but was limited to 80 percent of the rise in the relevant index and only for taxable incomes subject to marginal income tax rates of 49 percent and lower. Furthermore, except for the lowest rate of 20 percent, all the rates were raised by one percent age point. In 1 977 and 1 978, the adjustment was also limited to 80 percent. By limiting indexation to 80 percent of the special index, the gov ernment can continue raising more revenue than it would if full indexa tion were used.
By limiting indexation to 80 percent of the special index, the gov ernment can continue raising more revenue than it would if full indexa tion were used. By the same token , this limitation assures that some of the distortions in the tax incidence due to inflation will not be avoided . 4 percent of personal income tax revenues for those years . Obviously, these losses increase with an increase in the rate of inflation. For 1 975 they were estimated to be about 1 ,350 million guilders . The effect of the Dutch inflationary correction on various income groups for 1 975 is shown in Table 4.
The law required that the payment be adjusted by 100 percent of the increase in the consumer price index that occurred dur ing the year covered by the declaration (and not during the year when the payment was made) . In the 1 972-4 period , due to the acceleration in the rate of inflation , the monetary correction lagged substantially behind the current rate of inflation and became inadequate ; real re venue from incomes other than wages and salaries fell . From the beginning of 1 975 - on the basis of new legislation15 - the link to the minimum wage for indexing the nominal structure was cut and a new system of tax payment was introduced.