Taxation In a high inflation-Inflated Economy

Résumé

This study investigates the impact of taxation policy on hyperinflation within distressed economies, with a focus on advising the 2026 Nigerian government and tax policymakers. Adopting a descriptive methodology based on existing literature and library research, the study explores hyperinflation scenarios in various nations. Literature indicates that recently, Nigeria met the necessary condition to be term and hyperinflated economy considering global benchmark and IAS 29 necessary condition but failed to meet sufficient conditions to warrant inflation accounting. The observations from literature consulted reveal a complex relationship between taxation and hyperinflation, with distinct patterns observed during wartime and peacetime. While increasing tax rates during war exacerbate economic conditions, dragging taxpayers into higher brackets negatively correlates with hyperinflation control. Conversely, in peaceful times, raising taxes and introducing new levies have negligible effects on hyperinflation but worsen economic conditions. Additionally, the effectiveness of taxation in addressing hyperinflation depends on external factors such as economic mismanagement, political instability, and corruption. Measures like printing new currency provide short-term relief but lead to long-term economic harm. The findings further reveals that taxation effect on hyperinflation is the same either during war or peaceful times. Consequently, the study recommends a balanced taxation approach, considering the contextual effects during different periods and addressing external factors, while coordinating with prudent monetary policies to ensure long-term economic stability.