Inequality Effects of Inflation: The 'Bracket Creep' Effect in the Spanish Income Tax System

LINEEX Working Paper No. 08/05

26 Pages Posted: 6 Dec 2007

See all articles by Amadeo Fuenmayor

Amadeo Fuenmayor

D. of Applied Economics. University of Valencia; University of Valencia

Rafael Granell

University of Valencia - Department of Applied Economics

Francisco J. Higón-Tamarit

Universitat de València

J. A. Sanchis

University of Valencia - Department of Applied Economics II

Date Written: 2005

Abstract

The aim of this research is to analyse how inflation induced erosions of the nominally defined items of the tax rules of the Spanish income tax system may change distributional and revenue generating properties of income taxes. We further investigate the effects of the tax reform carried out in 2003. Although the Spanish government claimed that this reform would reduce tax liabilities, this is not so clear as many argue that this reform only offset the effects of inflation suffered by the population since 1999. Using the European Community Household Panel (ECHP) data set we aim to shed some light on the above issues through microsimulation techniques. Furthermore, we will also measure the inequality effects caused by the fact that the Spanish tax system does not automatically adjust the main fiscal elements to account for inflation.

Keywords: Income tax, Inflation, Micro simulation

JEL Classification: H24, H31, C81

Suggested Citation

Fuenmayor Fernández, Amadeo and Fuenmayor Fernández, Amadeo and Granell, Rafael and Higón-Tamarit, Francisco J. and Sanchis-Llopis, Juan Alberto, Inequality Effects of Inflation: The 'Bracket Creep' Effect in the Spanish Income Tax System (2005). LINEEX Working Paper No. 08/05, Available at SSRN: https://ssrn.com/abstract=1039701 or http://dx.doi.org/10.2139/ssrn.1039701

Amadeo Fuenmayor Fernández

D. of Applied Economics. University of Valencia ( email )

Faculty of Economics
Av. Tarongers, s.n.
Valencia, Valencia 46022
Spain
+34963828626 (Phone)
+34963828415 (Fax)

University of Valencia ( email )

Avda. de los Naranjos s/n
Valencia, Valencia E-46022
Spain
+34 963828626 (Phone)
+34 963828415 (Fax)

HOME PAGE: http://www.uv.es/~fuenmayo

Rafael Granell (Contact Author)

University of Valencia - Department of Applied Economics ( email )

4F04 Edificio Departamental Oriental
P.O. Box 22.006
Valencia, 33006
Spain

Francisco J. Higón-Tamarit

Universitat de València ( email )

2B07 Edificio Departamental Oriental
Campus dels Tarongers
Valencia, 46022
Spain

Juan Alberto Sanchis-Llopis

University of Valencia - Department of Applied Economics II ( email )

Edifici Departamental Oriental
Avda. dels Tarongers, S/N
46022 Valencia
Spain

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