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1 Santiago Calvo & Diego Sanchez de la Cruz, The Impact of High Inflation on Tax Revenues across Europe 1 (2024)

handle is hein.taxfoundation/highinfl0001 and id is 1 raw text is: *TAX FOUNDATION | EUROPE The Impact of High Inflation on Tax Revenues across Europe Santiago Calvo Guest Contributor Diego Sanchez de la Cruz Guest Contributor June 2024 KEY FINDINGS • Inflation in the EU rose significantly between 2021 and 2022 due to supply-demand shocks, the Ukraine energy crisis, and COVID-19 effects. From January 2020 to December 2023, prices in- creased by 21.3 percent in the EU and 18.9 percent in the euro area. • Inflation raises nominal tax bases, increasing tax revenues due to fiscal drag when tax brackets are not inflation-adjusted. The tax wedge increased by an average of 0.84 percent due to inflation between 2019 and 2022. • EU Member States have responded differently to inflation, mostly with discretionary measures rath- er than automatic adjustments. Inflation-driven tax collection has increased government revenues by an additional 1.5 percent of GDP and accounts for 40 percent of the increase in tax collection since 2019. • Automatic indexation in tax policy ensures fair and efficient adjustments to tax thresholds and benefits based on inflation. Only Austria, Denmark, and the Netherlands have automatic inflation adjustments for income tax thresholds, while Belgium, Finland, France, Germany, and Sweden make periodic adjustments without automatic indexing. • Inflation has expanded the nominal tax base and increased tax revenues, leading to a higher tax burden on taxpayers in countries like Spain. On average, Spanish households saw a €557 increase in income taxes and a €392 increase in value-added taxes (VAT) from 2021 to 2023, totaling an impact of €10.45 billion. The mission of Tax Foundation Europe is to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION EUROPE, RUE D'ARLON 40, 1000 BRUXELLES, BELGIUM taxfoundation.org/eu

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