Advanced

Income tax progressivity and war inflation during the two World Wars

Torregrosa-Hetland, Sara LU and Sabaté Domingo, Oriol LU (2019) In STANCE Working Papers Series 2019(1). p.1-34
Abstract
Top marginal rates in income taxes increased significantly during the two World Wars in most Western countries, which points towards increases in their progressivity. We argue, however, that this war-related effect is less clear-cut than previously thought: wartime inflation could have exerted a counteracting impact by pushing citizens into higher tax brackets, including new individuals from the bottom of the income distribution into being taxpayers, and reducing the real value of allowances. We study the impact of wartime inflation by calculating tax revenue, the number of taxpayers, effective tax rates and indices of tax progressivity and redistribution under different inflation scenarios in Sweden, the United Kingdom, and the United... (More)
Top marginal rates in income taxes increased significantly during the two World Wars in most Western countries, which points towards increases in their progressivity. We argue, however, that this war-related effect is less clear-cut than previously thought: wartime inflation could have exerted a counteracting impact by pushing citizens into higher tax brackets, including new individuals from the bottom of the income distribution into being taxpayers, and reducing the real value of allowances. We study the impact of wartime inflation by calculating tax revenue, the number of taxpayers, effective tax rates and indices of tax progressivity and redistribution under different inflation scenarios in Sweden, the United Kingdom, and the United States, during World War I and World War II. Our results show that inflation partially counteracted the progressive effect of increases in top marginal tax rates, particularly in Sweden during World War I and in the United Kingdom during World War II. However, the growth in income tax revenue as a result of bracket creep increased its redistributive impact. (Less)
Please use this url to cite or link to this publication:
author
and
organization
publishing date
type
Working paper
publication status
published
subject
keywords
Taxation, Fiscal Redistribution, World Wars, Bracket Creep, Progressivity, Income tax
in
STANCE Working Papers Series
volume
2019
issue
1
pages
34 pages
publisher
Lund University
project
State-Making and the Origins of Global Order in the Long Nineteenth Century and Beyond
Taxing for the welfare state: progressivity in the rise of social spending (1910-1970)
Taxing for the welfare state: public finances and progressivity in the rise of social spending (1910-1970)
language
English
LU publication?
yes
id
837ca2f4-bad2-4958-881c-01d3f1900c9d
date added to LUP
2019-03-12 10:56:58
date last changed
2019-03-13 08:25:30
@misc{837ca2f4-bad2-4958-881c-01d3f1900c9d,
  abstract     = {Top marginal rates in income taxes increased significantly during the two World Wars in most Western countries, which points towards increases in their progressivity. We argue, however, that this war-related effect is less clear-cut than previously thought: wartime inflation could have exerted a counteracting impact by pushing citizens into higher tax brackets, including new individuals from the bottom of the income distribution into being taxpayers, and reducing the real value of allowances. We study the impact of wartime inflation by calculating tax revenue, the number of taxpayers, effective tax rates and indices of tax progressivity and redistribution under different inflation scenarios in Sweden, the United Kingdom, and the United States, during World War I and World War II. Our results show that inflation partially counteracted the progressive effect of increases in top marginal tax rates, particularly in Sweden during World War I and in the United Kingdom during World War II. However, the growth in income tax revenue as a result of bracket creep increased its redistributive impact.},
  author       = {Torregrosa-Hetland, Sara and Sabaté Domingo, Oriol},
  language     = {eng},
  note         = {Working Paper},
  number       = {1},
  pages        = {1--34},
  publisher    = {Lund University},
  series       = {STANCE Working Papers Series},
  title        = {Income tax progressivity and war inflation during the two World Wars},
  volume       = {2019},
  year         = {2019},
}