Question

inflation may make taxpayers worse off if the government does not adjust the tax brackets accordingly

explain why

Answer 1

Inflation forces individuals into higher income brackets . Income tax is usually a direct taxes . Direct taxes are often progressive in nature . So the average tax rate that an individual pays is increasing in its income . When inflation increases , nominal income also increases , direct taxes also are high or more than proportional . So inflation unnecessarily pushes an individual to higher tax bracket but does not increase the real value of money . So a tax payer is worse off if the original tax brackets exists after inflation .