The call for indexing the German income tax schedule to inflation in order to eliminate bracket creep has become … widespread in the German tax policy debate. While it is indeed problematic that tax rates rise even when real incomes remain … constant, the authors show that currently this is no reason for tax cuts. Changes in both the tax schedule and deductible …

Using a microsimulation model, we estimate the effect of inflation adjusted tax brackets for the German income tax … moderate decrease in tax revenue in the next two years. Looking at the distributional effects of such a tax reduction, the … environment, there is leeway to implement such tax reform now. …