Progressive Taxation and Robust Monetary Policy

Hiraga Kazuki () and Kohei Hasui
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Hiraga Kazuki: Graduate School of Economics, Nagoya City University, Nagoya, Japan

The B.E. Journal of Macroeconomics, 2023, vol. 23, issue 2, 845-884

Abstract: Recent monetary policy analyses show the profound implications of progressive taxation for monetary policy. This paper investigates how progressive taxation on labor income changes the effect of model uncertainty by introducing robust control. We obtained the following results: (i) Higher progressive taxation decreases the effect of model uncertainty on the inflation rate, output gap, and interest rate. (ii) A sufficiently higher progressive taxation brings the economy into the determinate equilibrium even if the model uncertainty is strong. According to these results, we conclude that progressive taxation on labor income is effective in mitigating the effects of model uncertainty in terms of variance and equilibrium determinacy.

Keywords: monetary policy; progressive taxation; robust policy (search for similar items in EconPapers)
JEL-codes: E50 E52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/bejm-2021-0251

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