The Impact of Labor Income Tax Progressivity on the Fiscal Multipliers in the Context of the Fiscal Consolidation

Mariana Santos ()
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Mariana Santos: Nova School of Business and Economics

Notas Económicas, 2020, issue 51, 21-38

Abstract: ’Fiscal multipliers depend on several structural characteristics of each economy. In this study it is argued that labor income tax progressivity lowers the fiscal multipliers of fiscal consolidation programs. By calibrating an incomplete-markets, overlapping generations model for the United States for different values of the labor income tax progressivity, it is shown that as progressivity increases the recessionary impacts of fiscal consolidation are lower in the case of consolidation through decrease of government spending and are more recessionary in the case of consolidation financed with tax hikes.’

Keywords: Fiscal multipliers; labor income tax progressivity; government spending; taxation. (search for similar items in EconPapers)
JEL-codes: D52 H21 H6 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:gmf:journl:y:2020:i:51:p:21:38

DOI: 10.14195/2183-203X_51_2

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