Are Progressive Income Taxes Stabilizing?: A Reply

Yan Chen and Yan Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: Dromel and Pintus [Are Progressive Income Taxes Stabilizing?, Journal of Public Economic Theory 10, (2008) 329-349] have shown that labor-income tax progressivity reduces the likelihood of local indeterminacy, sunspots and cycles in a one sector monetary economy with constant returns to scale. In this note, we extend Dromel and Pintus (2008) into a two sector monetary economy with constant returns to scale studied by Bosi et al. (2007) and reassess the stabilizing effect of progressive income taxes. We show that the result in Dromel and Pintus (2008) is robust to this extension, which means that changes of the production structure won't affect the stabilizing effect of progressive income taxes, i.e., tax progressivity (regressivity) reduces (increases) the likelihood of local indeterminacy, sunspots and cycles.

Keywords: Tax Progressivity; local indeterminacy (search for similar items in EconPapers)
JEL-codes: E32 P35 (search for similar items in EconPapers)
Date: 2008-11-06
New Economics Papers: this item is included in nep-mac and nep-pub
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