Openness, Income-Tax Progressivity, and Inflation
Joseph Daniels and
No 704, Working Papers and Research from Marquette University, Center for Global and Economic Studies and Department of Economics
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; Tax Progressivity; Inflation (search for similar items in EconPapers)
JEL-codes: F40 F41 F43 (search for similar items in EconPapers)
Pages: 22 pages
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Published in the Journal of Macroeconomics, Vol 31(3), 2009, pages 485-491
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Journal Article: Openness, income-tax progressivity, and inflation (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mrq:wpaper:0704
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