Quantifying the impact of the 2021-22 inflation shock on Austria´s public finances

Holler, Reiss – Working Paper 10 – April 2023

Higher inflation tends to contribute to higher growth in nominal government revenue, but its overall effect on public finances is ambiguous. We show that while the current inflation shock has a small positive short-run effect on the budget balance, it is clearly detrimental to public finances in the medium to long run. The decline in real economic growth caused by the current inflationary shock aggravates its budgetary impact further. In addition, our results highlight that the recently introduced inflation indexation of income tax brackets and family benefits substantially contributes to the negative impact of higher inflation on public finances.

Publikationsjahr: 2023
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