Der Weg ist frei: mehr Steuergerechtigkeit durch nachhaltigen Abbau der kalten Progression
Annual indexing of income tax brackets to Inflation: A path to more justice in taxation
Using a microsimulation model, we estimate the effect of inflation adjusted tax brackets for the German income tax, implementing a standardised annual reduction of bracket creep. In light of the current low inflation rate, this would lead to a moderate decrease in tax revenue in the next two years. Looking at the distributional effects of such a tax reduction, the progressive tariff implies that upper income groups would benefit most in absolute terms. However, in relative terms, lower and middle class incomes in particular would be relieved of a substantial burden. Given the current economic and political environment, there is leeway to implement such tax reform now.
Breidenbach, P., R. Döhrn and T. Kasten (2014), Der Weg ist frei: mehr Steuergerechtigkeit durch nachhaltigen Abbau der kalten Progression: Annual indexing of income tax brackets to Inflation: A path to more justice in taxation. Wirtschaftsdienst, 94, 12, 859-863