Please refer to

https://review.chicagobooth.edu/economics/2019/article/how-fiscal-policy-drives-inflation

https://core.ac.uk/download/pdf/30678399.pdf

It is true that reduction in taxes is expected to increase the demand. But rise in inflation brings the demand downwards. If the taxes are reduced, government will have to borrow and increase the fiscal deficit and this will add to inflation. so it is a vicious circle and effort is made to balance both.

Please check out this link

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https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.db.com/newsroom_news/2019/low-inflation-presents-challenges-for-the-economy-says-matthew-luzzetti-en-11520.htm&ved=2ahUKEwjkgtu9s8DqAhWx4jgGHeY6CtwQFjAAegQIAxAB&usg=AOvVaw1q3LoHfT0-PQQd95gvikkG

There is one question that the FTPL does not seem to address: the monetization level of debt. Indirectly, it appears to be accounted for through the interest rate, but it would be interesting to see what role monetization plays. Judging from international data it would seem that there is a "breaking point" where monetization eventually results in high inflation rates.

It Is how taxes are spent. If Govt spend the taxes they collected, it will create an inflationary trend if the supply of goods is not forthcoming. If Govt deficit is funded by taxes, it is relocation from private spending to public spending, if the Govt spend the taxes they collected. If the Govt deficit is monetized, that is not collected from private sector but by printing the currency, it will create an inflation.

Tax is a fiscal monetary policy which the government controls in order to control the aggregate demand in the economy which does have an impact on Gross domestic Product (GDP) and the price level in the economy (inflation/deflation). So if a country increases tax rates, prices are automatically increase which leads to inflation and vice versa

Fiscal policy as one of the economic policies of every government is to stabilize the economy, correct balance of payment challenges, attain appropriate level of employment. Economic policies trade-off (that means we achieve some level of inflation as the expense of unemployment).

The ultimate of the government fiscal policy is to relocate funds from private to the governmental institutions. When the government increases taxes funds shift from private ones to the government hands vice versa. The government now able to spend the mobilized funds on the national needs rather than the individual spending on their private needs vice versa.

An increased in taxes will not automatic leads to inflation. It is only true if the country is suffering from demand pull inflation. If the country is facing demand pull inflation, then an increase in taxes will lead to worsening inflation plight but it is not the case when the country is facing cost push inflation. A government of a country that is facing cost push inflation can increase taxes, and spend the mobilize funds on production of goods and service. This will ultimate reduce money in circulation while at the same increase the quantity of goods and services in circulation. The ultimate effect will be decrease inflation.

Inflation arises from a high budget deficit, which the State cannot finance other than by creating money, what is commonly called "spinning the printing press". This increase in the money supply leads to an increase in prices.

Indeed, if a greater quantity of money is available for the same quantity of goods, then this results in an increase in prices. Inflation then arises from an escalating spiral: the rise in prices leads to wage increases, which in turn push prices up. This penalizes the economy as a whole, making it more difficult to balance public accounts, and therefore a new creation of money to make up for public deficits.

In addition, due to the increase in the quantity of currency in circulation, it depreciates against other currencies, thus increasing inflation due to the increase in the price of imports.

There are different perspectives to this topical issue. It generally depends on how taxes are raised and spent. If people and firms are taxed in a way that it doesn't lead to disincentive to work and investment. The productivity and the supply of goods and services will not be negatively affected. This may not result into inflationary spiral. On the other hand, if government revenues from taxes are spent without a corresponding increase in productive capacity of the economy, the inflation rate tends to rise. It is a case whereby more money is injected into the economy and the productive base doesn't improve. This is a phenomenon of too much money chasing too few goods. Government should always use the tax revenues to build up the productive base. Revenues from taxes are meant to be spent to increase the productive base, if not inflation will be the end result. Also, if the proceeds from taxes are embezzled and the opportunists have unearned money. This may encourage frivolous spendings and it will lead to inflation. This is more prevalent in developing countries where weak institutional framework abets diversion of public fund into private purses of corrupt stakeholders in governance. It is theoretically believed that if fiscal deficits are financed through seigniorage, the inflationary spiral will occur.

Inflation could be as a result of demand and supply and the market price generally. Government can control tax but do not have the sole power to control inflation, that why monetary and fiscal policy are used majorly as instruments to control inflation.

Olatunji Shobande Dear,

Yes, if the government spent tax amount which they collected from people, definitely, it will create the trend of inflation,

I supposed fiscal and monetary policies not clear.

But fiscal or tax policy causes some important effects on inflation as Keynesian suggested. if tax rate is increased inflation is expected to reduce because disposable income is expected to reduce also, which affects and reduces the M1 in circulation. But if tax rate is reduced then it is affecting and increasing the disposable income and rises the M1 in circulation which increases inflation too. ..

Inflation erodes purchasing power or how much of something can be purchased with currency. Because inflation erodes the value of cash, it encourages consumers to spend and stock up on items that are slower to lose value. It lowers the cost of borrowing and reduces unemployment.