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"Rather, the increase in inflation was due to things like tax increases, exchange rate fluctuations, oil price moves, etc."

It seems to me that tax cutting could lead to increased consumption and therefore a reduction in GDP slack and upward pressure on prices (inflation). Why is it that tax increases would lead to inflation?



It depends on what the tax increase or tax decrease affect. If a tax cut goes predominantly to those who invest in greater productivity, then increased supply can drop prices - but only if that investment is more efficient than consequently relinquished government investment. These things are horribly difficult to measure. Perhaps Ukrainian defense spending is a total waste, and should cease with a corresponding tax cut. Perhaps it is preventing a transfer of common wealth to an oligarch, and is the most important investment the country makes. I'm quite sure I don't know.


An increase in sales tax or more likely VAT in the UK will immediately show up in prices as inflation. You may be thinking of income tax which may indeed have a different effect depending on the circumstances.


Either way, we can all sleep at night. Goldman Sachs made money...




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