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Openness, income-tax progressivity, and inflation

  • Daniels, Joseph P.
  • VanHoose, David D.

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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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 3 (September)
Pages: 485-491

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:3:p:485-491
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Cukierman Alex, 1992. "Central Bank Strategy, Credibility, And Independance: Theory And Evidence," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 10, December.
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  9. Razin, Assaf & Yuen, Chi-Wa, 2001. "The 'New Keynesian' Phillips Curve: Closed Economy versus Open Economy," CEPR Discussion Papers 3083, C.E.P.R. Discussion Papers.
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  14. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
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  16. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, June.
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  25. repec:ner:tilbur:urn:nbn:nl:ui:12-364378 is not listed on IDEAS
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