Inflation and the indexation of personal income taxes in theory and in practice
Keywords:Indexation, personal income taxes, adjustment schemes, inflation
The work considers the arguments for and against the indexation of personal income taxes. The author first reviews the effects of inflation on personal income and tax liabilities. The four analytical adjustment schemes that have been proposed in the literature to correct for the impact of inflation on personal income tax liabilities are then described and some particular problems with the adjustment schemes are highlighted. Finally, practical applications of indexation in several countries are assessed.
JEL: E31, H24