Tax distortions from inflation: What are they? How to deal with them?*
https://doi.org/10.3326/pse.47.3.3 | Published online: September 4, 2023 Table 1
Adjustment of income tax thresholds
a All but the highest bracket are indexed since 2022. b Adjusted for average wage growth. c If inflation > 3%. Source: Authors’ compilation based on IBFD and official websites. Figure 1
Effective tax rates on real savings returns (in %) Notes: Assumed tax rate of 25 percent. Source: Authors’ calculations. Figure 2
The impact of inflation on the trade-off between capital gains and distributions (in %) Assumptions: Tax rate: 25 percent, real return: 3 percent, real discount rate: 0 percent. For the 10-year distributing assets, all distributions (interest, rents, dividends) are assumed to be reinvested at the same conditions. Source: Authors’ calculations. Figure 3
The impact of inflation on the NPV of depreciation allowances Figure 4
Distribution of depreciation rates Figure 5
Effective tax rates as a function of inflation Notes: The calculations assume a CIT rate of 25 percent, both true economic depreciation and depreciation allowance of 12¼ percent, a real interest rate of 5 percent, and for the EATR, a financial return of 20 percent. Source: Authors’ calculations. Figure 6
Critical debt shares as a function of depreciation rates Table 2
The impact of inflation on investment
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September, 2023 III/2023 |
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