Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95290
Authors: 
Mattesini, Fabrizio
Rossi, Lorenza
Year of Publication: 
2010
Series/Report no.: 
Quaderni di Dipartimento 134
Abstract: 
We study the effects of progressive labor income taxation in an otherwise standard NK model. We show that progressive taxation (i) introduces a trade-off between output and inflation stabilization and affects the slope of the Phillips Curve; (ii) acts as automatic stabilizer changing the responses of the economy to technology shocks and demand shocks (iii) alters the prescription for the optimal discretionary interest rate rule. We also show that the welfare gains from commitment decrease as labor income taxes become more progressive. Quantitatively, the model is able to reproduce the observed negative correlation between the volatility of output, hours and in?ation and the degree of progressivity of labor income taxation.
JEL: 
E50
E52
E58
Document Type: 
Working Paper

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