Quantifying the impact of the 2021–22 inflation shock on Austria’s public finances

Johannes Holler () and Lukas Reiss ()
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Johannes Holler: Oesterreichische Nationalbank, Economic Analysis Division
Lukas Reiss: Oesterreichische Nationalbank, Economic Analysis Division

Monetary Policy & the Economy, 2023, issue Q4/22-Q1/23, 117-130

Abstract: Higher inflation tends to contribute to higher growth in nominal government revenue, but its overall effect on public finances is ambiguous. We show that while the current inflation shock has a small positive short-run effect on the budget balance, it is clearly detrimental to public finances in the medium to long run. The decline in real economic growth caused by the current inflationary shock aggravates its budgetary impact further. In addition, our results highlight that the recently introduced inflation indexation of income tax brackets and family benefits substantially contributes to the negative impact of higher inflation on public finances.

Keywords: inflation; budget balance (search for similar items in EconPapers)
JEL-codes: E31 H60 (search for similar items in EconPapers)
Date: 2023
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