Inflation taxes are bad policy
11 September 2023
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Energy and Environment
Lifestyle Economics
12 September 2023
Lifestyle Economics
15 November 2024
Julian Jessop writes for the Financial Times
IEA Economics Fellow Julian Jessop has written for the Financial Times on why an Inflation tax is an inappropriate, impractical, and ineffective policy proposal.
Julian wrote:
“It would be inappropriate because it would prevent markets from working properly. The wages paid by each company to each employee, like the prices of any other good or service, should be free to respond to the forces of supply and demand.
“It would be impractical. What if the government itself imposes a large increase in the national minimum wage? What about workers whose pay has been frozen, or even cut, in previous years? What about bonuses, allowances, or “promotions”, which are bound to multiply as firms look to avoid the new tax? Imagine the additional bureaucracy needed to police all of this.
“Last but not least, this proposal would be ineffective, because it would not tackle the underlying monetary causes of inflation. Wages are only just beginning to catch up with prices. If anything, inflation is fuelling wage rises, rather than the other way round.”
You can read the full article here.
Julian wrote:
“It would be inappropriate because it would prevent markets from working properly. The wages paid by each company to each employee, like the prices of any other good or service, should be free to respond to the forces of supply and demand.
“It would be impractical. What if the government itself imposes a large increase in the national minimum wage? What about workers whose pay has been frozen, or even cut, in previous years? What about bonuses, allowances, or “promotions”, which are bound to multiply as firms look to avoid the new tax? Imagine the additional bureaucracy needed to police all of this.
“Last but not least, this proposal would be ineffective, because it would not tackle the underlying monetary causes of inflation. Wages are only just beginning to catch up with prices. If anything, inflation is fuelling wage rises, rather than the other way round.”
You can read the full article here.
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