Rising prices hit the poor hardest, leading to unfair income taxation.
The article explores how a rise in the cost of basic needs affects optimal income taxation. It finds that when the government aims for overall well-being and people's dislike for work increases steadily, the best tax plan remains the same. People are expected to work more to maintain their spending. Even with a dislike for work that grows faster, the tax rates can stay constant to handle the price increase. However, the poorest individuals are likely to work more to make up for the higher prices, leading to a bigger drop in their overall satisfaction.