Question

How does the fiscal policy of the government control inflation with the taxation?

Answer 1

Raising the tax burden through tax rate increases and new tax impositions is the main tenet of anti-inflationary fiscal policy. For this, direct taxes may be utilised. Direct taxes, such as income tax and corporation tax, lower taxpayers’ disposable income, which in turn lowers their spending. At the same time, the tax code should be revised to encourage people to save money and offer incentives for making profitable investments.