Abstract
The aim of the article is to identify the extent to which the price index in the EU countries was shaped by changes in indirect tax rates. In order to ensure the comparability of data, the analysis was based on the harmonised index of consumer prices (HICP) and the harmonised index of consumer prices at constant tax rates (HICP-CT). Six countries with the biggest difference between the HICP and HICP-CT were selected for an in-depth analysis of changes in VAT and excise duties: Romania, Hungary, Greece and the Baltic countries. The study covered the 2007–2016 period. On the basis of the study one can conclude that the structure of the tax system with a high proportion of indirect taxes equips fiscal authorities with tools to influence the prices.
Highlights
The relationship between inflation and indirect taxes is bidirectional
The inverse relationship between indirect taxes and inflation consists in the fact that changes in tax rates shape the prices
The fact that indirect taxes shape the prices can result in inflation phenomena
Summary
The relationship between inflation and indirect taxes is bidirectional. Changes in the price level affect the tax revenues by influencing the tax base. The inverse relationship between indirect taxes and inflation consists in the fact that changes in tax rates shape the prices. The fact that indirect taxes shape the prices can result in inflation phenomena. 9–10], interpreting the definitions of inflation by Friedman [1968] as well as Laidler and Parkin [1975], concludes that a one-time bump in the prices due to changes in VAT rates cannot be called inflation. This is explained by the fact that these definitions do not apply to any increase in prices, but refer to an.
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