Impact of Inflation on Fiscal Aggregates in Austria

Doris Prammer and Lukas Reiss ()
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Lukas Reiss: Oesterreichische Nationalbank, Economic Analysis Division

Monetary Policy & the Economy, 2015, issue 1, 27-41

Abstract: In Austria, temporary shocks to inflation (with unchanged real macroeconomic developments) impact the primary balance, i.e. the overall budget balance excluding interest payments, mainly via taxes and transfers whose brackets or rates are not indexed to inflation. Even though the overall effect of such shocks on budget balances would be very small in Austria, below-average inflation, for example, is still negative from a government’s viewpoint because it significantly raises the public debt ratio. Lower inflation moreover depresses the gains made from both bracket creep and the devaluation of nominally fixed transfers, which is, however, somewhat compensated for by decreasing interest payments. Households, by contrast, benefit from lower inflation as it causes their net tax burden to go down.

Keywords: bracket creep; inflation indexation; Austria; social benefits (search for similar items in EconPapers)
JEL-codes: E62 H60 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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