Joseph P. Daniels () (Center for Global and Economic Studies, Marquette University) David D. VanHoose () (Hanmaker School of Business, Baylor University)
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This paper considers a model of an open economy in which the degree of income-tax progressivity influences the interaction among openness, central bank independence, and the inflation rate. Our model suggests that an increase in the progressivity of the tax system induces a smaller response in real output to a change in the price level. This implies that increased income-tax progressivity reduces the equilibrium inflation rate and that the effect of increased income-tax progressivity on inflation is smaller when the central bank places a higher weight on inflation or when there is greater openness. Examination of cross-country inflation data provides empirical support for these key predictions.
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Paper provided by Marquette University, Department of Economics in its series Working Papers and Research with number
0704.
Length: 22 pages Date of creation: Apr 2007 Date of revision: Publication status: Published in the Journal of Macroeconomics, Vol 31(3), 2009, pages 485-491 Handle: RePEc:mrq:wpaper:0704
Find related papers by JEL classification: F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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