Unveiling the bracket creep: static versus dynamic fiscal drag

José Félix Sanz Sanz () and María Arrazola Vacas
Additional contact information
José Félix Sanz Sanz: Universidad Complutense de Madrid (Campus Somosaguas)
María Arrazola Vacas: Universidad Rey Juan Carlos

Journal of Economics, 2025, vol. 146, issue 3, No 5, 443-475

Abstract: Abstract This paper develops a simple model that accurately quantifies the surtax of not indexing the personal income tax schedule(s) in inflationary scenarios and the corrective compensation in case of total or partial indexing. The model is developed for the individual taxpayer and the population aggregate and identifies two different components within the bracket creep, one static, linked to the pre-inflation taxable income, and the other dynamic, associated with changes in the taxable income. Finally, an empirical application of the model to the case of Spain for 2022 is provided. The findings from this empirical analysis demonstrate that the decision not to index the tax schedule will impose an additional tax of over 1,187 million euros on Spanish taxpayers, of which 94% (1,114 million) corresponds to static bracket creep and the remainder (74 million) to the dynamic component. Paradoxically, although the static component is significantly larger, bracket creep continues to be defined in the literature in terms of its dynamic component.

Keywords: Bracket creep; Inflation; Personal income tax (search for similar items in EconPapers)
JEL-codes: D31 D63 H20 H24 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00712-025-00914-0 Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:146:y:2025:i:3:d:10.1007_s00712-025-00914-0

DOI: 10.1007/s00712-025-00914-0

Access Statistics for this article

Journal of Economics is currently edited by Giacomo Corneo

More articles in Journal of Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().