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Definition: Tax and Price Index (TPI)
It is a measure of the percentage by which a person’s gross income should change in order to have the same purchasing power after the change. For a person to have the same purchasing power after increased retail prices and increasing tax rates, his disposable income needs to increase.
It tells the measure by which the income should increase. It a more accurate measure than Consumer price index and Wholesale price index because it also takes taxes into account. The taxes considered are direct taxes.
Suppose,Mr X has an income of $ 10000 in current year and next year the taxes increase by 5% and inflation is 7%. Then in order to have same purchasing power his income should increase by 12%. Normally the calculations are done taking into account a stable base year in which there was no significant change in economic activity.
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