Policy Forum: The Effects of Indexation and Inflation on Tax System Design

Abstract

Indexation of tax systems is meant to combat the effects of inflation. In this article, the authors explore various approaches to indexation in Canada's tax system and consider how inflation affects government revenues, tax system neutrality, Canadian-controlled private corporations, and individual taxpayers. The authors also consider different approaches to designing tax systems to accommodate and adjust for inflation, with a particular focus on approaches to indexation. The article concludes with a set of recommendations for tax system design that aim to address the challenges posed by inflation.