What is the difference between inflation and tax?

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Readers question: What is the difference between tax and inflation?

Tax is a way for the government to raise revenue. It includes charges placed by the government on goods/income. For example, VAT is a tax which means consumers have to pay an additional 20% of the price in the form of tax which goes to the government.

Inflation means a rise in living costs – a rise in the price of living. It is measured by Consumer Price Index (CPI).

The inflation tax

Some economists, such as Milton Friedman suggest that, under certain circumstances, inflation can become an effective


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This blog is written by Tejvan Pettinger. (born 1976)

He lives in Oxford where he works as an Economics teacher (A Level students) at Greenes College and formerly with Cherwell College, Oxford. Tejvan Pettinger studied PPE at Lady Margaret Hall, Oxford University, gaining a 2:1.

He contributes articles to the Economic Review and writes regularly on economics.

Between 2001 and 2006 he worked as examiner and Team Leader for Edexcel examinations.

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