Open AccessThe Impact of Labor Income Tax Progressivity on the Fiscal Multipliers in the Context of the Fiscal Consolidation
Author(s) -
Mariana Santos
Publication year - 2020
Publication title -
notas económicas/notas económicas
Language(s) - English
Resource type - Journals
eISSN - 2183-203X
pISSN - 0872-4733
DOI - 10.14195/2183-203x_51_2
Subject(s) - consolidation (business) , economics , fiscal policy , income tax , labour economics , macroeconomics , monetary economics , public economics , finance
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.