indexationˌɪn dɛkˈseɪ ʃən
indexation (n)
English Definitions:
indexation (noun)
a system of economic regulation: wages and interest are tied to the cost-of-living index in order to reduce the effects of inflation
indexation (Noun)
the adjustment of an economic variable (such as a salary) according to an index (such as that of inflation)
Indexation
Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation, while Deindexation refers to the unwinding of indexation. From a macroeconomics standpoint there are four main categories of indexation: wage indexation, financial instruments rate indexation, tax rate indexation, and exchange rate indexation. The first three are indexed to inflation. The last one is typically indexed to a foreign currency mainly the US dollar. Any of these different types of indexation can be reversed. Applying a cost-of-living escalation COLA clause to a stream of periodic payments protects the real value of those payments and effectively transfers the risk of inflation from the payee to the payor, who must pay more each year to reflect the increases in prices. Thus, inflation indexation is often applied to pension payments, rents and other situations which are not subject to regular re-pricing in the market. COLA is not CPI, which is an aggregate indicator. Using CPI as a COLA salary adjustment for taxable income fails to recognize that increases are generally taxed at the highest marginal tax rate whereas an individual's rising costs are paid with after-tax dollars - dollars commensurate with an individual's average after-tax level. Indexing tax brackets does not address this fundamental issue but it does effectively eliminate "bracket-creep".
Indexation
Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation, while deindexation is the unwinding of indexation.
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"indexation." Kamus.net. STANDS4 LLC, 2024. Web. 28 Mar. 2024. <https://www.kamus.net/english/indexation>.
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