Progressive Taxation and Monetary Policy in Australia

Ekaterina Shabalina

RBA Annual Conference Papers from Reserve Bank of Australia

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.

Keywords: tax progressivity; monetary policy transmission; natural rate of interest; heterogeneous agents (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mon, nep-pbe and nep-pub
Note: Paper presented at the RBA's annual conference 'Monetary and Fiscal Policy Interactions', Sydney, 4–5 September 2025.
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbaacp:acp2025-03

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