Monetary Policy and Automatic Stabilizers: the Role of Progressive Taxation
AbstractWe study the effects of progressive labor income taxation in an otherwise standard NK model. We show that progressive taxation (i) introduces a trade-off between output and inflation stabilization and affects the slope of the Phillips Curve; (ii) acts as automatic stabilizer changing the responses of the economy to technology shocks and demand shocks (iii) alters the prescription for the optimal discretionary interest rate rule. We also show that the welfare gains from commitment decrease as labor income taxes become more progressive. Quantitatively, the model is able to reproduce the observed negative correlation between the volatility of output, hours and in?ation and the degree of progressivity of labor income taxation.
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Bibliographic InfoPaper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 134.
Length: 43 pages
Date of creation: Nov 2010
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Other versions of this item:
- Fabrizio Mattesini & Lorenza Rossi, 2012. "Monetary Policy and Automatic Stabilizers: The Role of Progressive Taxation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 825-862, 08.
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- Balleer, Almut & Gehrke, Britta & Lechthaler, Wolfgang & Merkl, Christian, 2013.
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- Kremer, Jana & Stähler, Nikolai, 2013.
"Structural and cyclical effects of tax progression,"
15/2013, Deutsche Bundesbank, Research Centre.
- 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).
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