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

Authors

  • Mariana Santos Nova School of Business and Economics

DOI:

https://doi.org/10.14195/2183-203X_51_2

Keywords:

Fiscal multipliers, labor income tax progressivity, government spending, taxation

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.

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Published

2020-12-11

Issue

No. 51 (2020): Special Issue: Essays on Inequality, Structural Change and Optimal Taxation

Section

Articles

License

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows sharing the work with recognition of authorship and initial publication in Antropologia Portuguesa journal.