Torregrosa Hetland, Sara

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https://academica-e.unavarra.es/handle/2454/50085

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Torregrosa Hetland

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Sara

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Economía

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INARBE. Institute for Advanced Research in Business and Economics

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0000-0003-2082-2004

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751417

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812447

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Author: Sabaté, Oriol ×

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    PublicationOpen Access
    Income tax progressivity and inflation during the world wars
    (Oxford University Press, 2021-10-05) Torregrosa Hetland, Sara; Sabaté, Oriol; Economía; Ekonomia
    This paper studies the impact of inflation on income taxes in Sweden, the UK, and the United States during the world wars. As tax reforms were rising top marginal rates and reducing exemption thresholds, extraordinary levels of inflation eroded the real value of exemptions, brackets, and deductions. The micro-simulation of actual and alternative scenarios shows that inflation made the tax less progressive, particularly in Sweden during World War I and the UK during World War II. Nevertheless, its redistributive effect increased due to the related growth in tax revenue. Inflation contributed to transform a "class tax'' into a "mass tax".
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    War inflation and taxation
    (Routledge, 2025-05-30) Sabaté, Oriol; Torregrosa Hetland, Sara; Economía; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE
    Warfare has been commonly associated with increasing levels of inflation, with important implications for tax systems. In this chapter, we first review the literature on war finance and inflation, considering both the fiscal causes of inflation during wartimes and the effects of inflation on tax revenues. Second, we focus on developments in the income tax during the World Wars, building upon our previous work (Torregrosa-Hetland and Sabaté, 2022). We describe the mechanisms through which inflation affected progressivity and redistribution, by reducing the real value of exemptions, brackets and deductions ("bracket creep"). This led to the incorporation of new taxpayers into the income tax system and increased significantly the tax burden of those already included. Third, we study the issue of income tax legitimacy in the face of war inflation using a novel dataset of parliamentary debates and press articles in the United Kingdom. Other episodes of bracket creep have been associated with legitimacy challenges. We use natural language processing techniques to examine whether the effects of inflation on tax progressivity were a topic of discussion in national parliaments and the press, and the extent to which MPs and journalists identified inflation as a challenge to income tax legitimacy.