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Labour tax progressivity and output volatility: evidence from OECD countries

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  • Attinasi, Maria-Grazia
  • Checherita-Westphal, Cristina
  • Rieth, Malte

Abstract

This paper investigates empirically the effect of personal income tax progressivity on output volatility in a sample of OECD countries over the period 1982-2009. Our measure of tax progressivity is based on the difference between the marginal and the average income tax rate for the average production worker. We find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility. All other factors constant, countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilisers. JEL Classification: E63, E32, H10

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1380.

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Date of creation: Sep 2011
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Handle: RePEc:ecb:ecbwps:20111380

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Keywords: automatic stabilisers; output volatility; personal income taxes; Progressivity;

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References

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  1. Olaf Posch, 2008. "Explaining output volatility: The case of taxation," CREATES Research Papers 2008-04, School of Economics and Management, University of Aarhus.
  2. Carlos Martinez-Mongay & Khalid Sekkat, 2005. "Progressive Taxation, Macroeconomic Stabilization and efficiency in Europe," European Economy - Economic Papers 233, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Jean Pisani-Ferry & Xavier Debrun & André Sapir, 2008. "Government Size and Output Volatility," IMF Working Papers 08/122, International Monetary Fund.
  4. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
  5. Moldovan, Ioana R., 2010. "Countercyclical taxes in a monopolistically competitive environment," European Economic Review, Elsevier, vol. 54(5), pages 692-717, July.
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  8. Thiess Buettner & Clemens Fuest, 2010. "The role of the corporate income tax as an automatic stabilizer," International Tax and Public Finance, Springer, vol. 17(6), pages 686-698, December.
  9. Carmignani, Fabrizio & Colombo, Emilio & Tirelli, Patrizio, 2011. "Macroeconomic risk and the (de)stabilising role of government size," European Journal of Political Economy, Elsevier, vol. 27(4), pages 781-790.
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  12. Xavier Debrun & Radhicka Kapoor, 2010. "Fiscal Policy and Macroeconomic Stability," IMF Working Papers 10/111, International Monetary Fund.
  13. Alan J. Auerbach & Daniel Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," NBER Working Papers 7662, National Bureau of Economic Research, Inc.
  14. Xavier Debrun & Jean Pisani-Ferry & André Sapir, 2008. "Government size and output volatility: should we forsake automatic stabilisation?," Working Papers 47, Bruegel.
  15. Carlo Cottarelli & Annalisa Fedelino, 2010. "Automatic Stabilizers and the Size of Government," IMF Working Papers 10/155, International Monetary Fund.
  16. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises," IMF Working Papers 10/146, International Monetary Fund.
  17. Jens Arnold, 2008. "Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel of OECD Countries," OECD Economics Department Working Papers 643, OECD Publishing.
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Cited by:
  1. Jana Kremer & Nikolai Stähler, 2013. "Structural and Cyclical Effects of Tax Progression," IAAEU Discussion Papers 201305, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  2. Yongzheng Liu & Jorge Martinez-Vazquez, 2010. "The Growth-Inequality Tradeo in the Design of Tax Structure: Evidence from a Large Panel of Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1320, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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