Openness, income-tax progressivity, and inflation

Joseph P. Daniels () and David VanHoose

Journal of Macroeconomics, 2009, vol. 31, issue 3, pages 485-491

Abstract: 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.

Keywords: Openness; Inflation; Tax; progressivity (search for similar items in EconPapers)
Date: 2009

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Working Paper: Openness, Income-Tax Progressivity, and Inflation (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jmacro:v:31:y:2009:i:3:p:485-491

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