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

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 f...

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Bibliographic Details
Published inNotas económicas no. 51; pp. 21 - 38
Main Author Santos, Mariana
Format Journal Article
LanguageEnglish
Published Coimbra University Press 01.12.2020
Subjects
Fiscal multipliers
government spending
labor income tax progressivity
taxation
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ISSN0872-4733
2183-203X
DOI10.14195/2183-203X_51_2

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Summary: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.
ISSN:0872-4733
2183-203X
DOI:10.14195/2183-203X_51_2