The effects of inflationary finance on tax revenue under progressive tax regimes: An application to turkey, 1963–1982

The revenue from inflationary finance of government expenditures is enhanced because of the phenomenon of bracket-creep. Bracket-creep occurs in progressive tax systems because inflation pushes tax payers into higher tax brackets and thus increases the real tax revenue. In highly inflationary economies, the implicit revenue gain due to bracket-creep can be a significant source of revenue to the government. In the case of Turkey in 1963–1982, we find that government appropriated significant revenue due to bracket-creep, in addition to the revenue from inflationary finance.