Growth-Friendly Taxation in a High-Inflation Environment

Áron Kiss, Alexander Leodolter, Alessandro Turrini and István Ványolós

No 79, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

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.Length: 20 pages

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 (search for similar items in EconPapers)
JEL-codes: D1 H2 H21 H24 H3 H31 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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