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Progressive Taxation and Monetary Policy in Australia

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  • Ekaterina Shabalina

Abstract

This paper studies how tax progressivity affects monetary policy. Through the lens of a heterogeneous agent model with nominal rigidities it shows that, firstly, higher tax progressivity increases natural rate due to a lower demand for precautionary savings. Secondly, the effect of tax progressivity on the potency of monetary policy is small with a higher progressivity implying a slightly better inflation-output trade-off. Distributional effects of monetary policy, however, are amplified with a higher tax progressivity.

Suggested Citation

  • Ekaterina Shabalina, "undated". "Progressive Taxation and Monetary Policy in Australia," RBA Annual Conference Papers acp2025-03, Reserve Bank of Australia, revised Nov 2025.
    • Handle: RePEc:rba:rbaacp:acp2025-03
    Note: Paper presented at the RBA's annual conference 'Monetary and Fiscal Policy Interactions', Sydney, 4–5 September 2025.
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    File URL: https://www.rba.gov.au/publications/confs/2025/pdf/rba-conference-2025-shabalina.pdf
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    References listed on IDEAS

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