Openness, Income-Tax Progressivity, and Inflation
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.
|Date of creation:||Apr 2007|
|Date of revision:|
|Publication status:||Published in the Journal of Macroeconomics, Vol 31(3), 2009, pages 485-491|
|Contact details of provider:|| Postal: P.O. Box 1881, Milwaukee WI 53201-1881|
Phone: (414) 288-7377
Web page: http://business.marquette.edu/departments/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 450-68, May.
- Laurence Ball, 1994.
"What Determines the Sacrifice Ratio?,"
in: Monetary Policy, pages 155-193
National Bureau of Economic Research, Inc.
- Jay Bryson & Henrik Jensen & David Hoose, 1993. "Rules, discretion, and international monetary and fiscal policy coordination," Open Economies Review, Springer, vol. 4(2), pages 117-132, June.
- Andrew T. Levin & Jeremy M. Piger, 2003.
"Is inflation persistence intrinsic in industrial economies?,"
2002-023, Federal Reserve Bank of St. Louis.
- Levin, Andrew T. & Piger, Jeremy M., 2004. "Is inflation persistence intrinsic in industrial economies?," Working Paper Series 0334, European Central Bank.
- Andrew Levin & Jeremy Piger, 2003. "Is Inflation Persistence Intrinsic in Industrial Economies?," Computing in Economics and Finance 2003 298, Society for Computational Economics.
- Razin, Assaf & Yuen, Chi-Wa, 2002.
"The 'New Keynesian' Phillips curve: closed economy versus open economy,"
Elsevier, vol. 75(1), pages 1-9, March.
- 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.
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Duca, John V. & Van Hoose, David D., 2001.
"The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy,"
Journal of Macroeconomics,
Elsevier, vol. 23(1), pages 1-29, January.
- Duca, John V. & VanHoose, David D., 1998. "The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy," Working Papers 9805, Federal Reserve Bank of Dallas.
- Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
- Waller, Christopher J. & VanHoose, David D., 1989. "Endogenous wage indexation and optimal monetary policy with and without a balanced budget," Journal of Economics and Business, Elsevier, vol. 41(1), pages 21-31, February.
- 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.
- Joseph P. Daniels & Farrokh Nourzad & David D. VanHoose, 2005. "Openness, Centralized Wage Bargaining, and Inflation," Working Papers and Research 0505, Marquette University, Center for Global and Economic Studies and Department of Economics.
- van Soest, A.H.O. & Woittiez, I.B. & Kapteyn, A.J., 1989.
"Labour supply, income taxes and hours restrictions in the Netherlands,"
1989-3, Tilburg University, Center for Economic Research.
- Arthur van Soest & Isolde Woittiez & Arie Kapteyn, 1990. "Labor Supply, Income Taxes, and Hours Restrictions in the Netherlands," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 517-558.
- Kapteyn, A. & Soest, A.V. & Woittiez, I., 1989. "Labour Supply, Income Taxes And Hours Restrictions In The Netherlands," Papers 8903, Tilburg - Center for Economic Research.
- David Romer, 1991.
"Openness and Inflation: Theory and Evidence,"
NBER Working Papers
3936, National Bureau of Economic Research, Inc.
- Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
- Jane E. Ihrig & Jaime R. Marquez, 2003. "An empirical analysis of inflation in OECD countries," International Finance Discussion Papers 765, Board of Governors of the Federal Reserve System (U.S.).
- Assaf Razin & Prakash Loungani, 2005. "Globalization and Equilibrium Inflation-Output Tradeoffs," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 171-192 National Bureau of Economic Research, Inc.
- 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, March.
- Cristina T. Terra, 1998.
"Openness and Inflation: A New Assessment,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(2), pages 641-648.
- Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 371-79, April.
- Robert K. Triest, 1990. "The Effect of Income Taxation on Labor Supply in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 491-516.
- Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
- 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.
- Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, March.
- McCallum, B. T. & Whitaker, J. K., 1979. "The effectiveness of fiscal feedback rules and automatic stabilizers under rational expectations," Journal of Monetary Economics, Elsevier, vol. 5(2), pages 171-186, April.
- François Bourguignon & Thierry Magnac, 1990. "Labor Supply and Taxation in France," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 358-389.
When requesting a correction, please mention this item's handle: RePEc:mrq:wpaper:0704. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Andrew G. Meyer)
If references are entirely missing, you can add them using this form.