Disinflation and taxation: The case of Israel

Assaf Razin*, Efraim Sadka

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


Israel's experience indicates that high inflation places an asymmetrically heavy burden on workers, relative to employers and the self-employed. The mechanisms by which this unequally distributed burden is created are through the tax system and exchangerate policy which altered the relative prices of low labour-intensive tradable goods versus high labour-intensive non-tradable goods. We have shown that the interaction between inflation and taxation resulted in a low tax burden on the business sector and relatively high burden on wage earners. (This 'inflation tax' on wage earners does not stem from the traditional depreciation of money balances or the so-called Tanzi effect.) Indeed, the stabilization programme tilted the functional distribution of income in favour of labour.

Original languageEnglish
Pages (from-to)37-46
Number of pages10
JournalInternational Journal of Finance and Economics
Issue number1
StatePublished - 1996


  • Capital income tax
  • Income distribution
  • Inflation
  • Labour income tax


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