Unit-of-account costs may be especially important in the tax system when inflation distorts the measures of income on which taxes are collected.

Question

Quizplus · Accepted Answer

When inflation distorts measures of income, it can lead to taxpayers paying taxes based on nominal income that has not changed in real terms, resulting in a higher tax burden. This is why unit-of-account costs are important in the tax system, as they help to ensure that the measures of income used for taxation purposes are adjusted for inflation, thereby reducing the negative impact of inflation on taxpayers.

Unit-Of-Account Costs May Be Especially Important in the Tax System