Personal Income Tax Progressivity and Output Volatility: Evidence from OECD Countries

31 Pages Posted: 13 Sep 2011

See all articles by Maria Grazia Attinasi

Maria Grazia Attinasi

European Central Bank (ECB)

Cristina D. Checherita-Westphal

European Central Bank (ECB)

Malte Rieth

German Institute for Economic Research (DIW Berlin)

Date Written: September 1, 2011

Abstract

This paper investigates empirically the effect of personal income tax progressivity on output volatility in a sample of OECD countries over the period 1982-2009. Our measure of tax progressivity is based on the difference between the marginal and the average income tax rate for the average production worker. We find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility. All other factors constant, countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilisers.

Keywords: Progressivity, personal income taxes, output volatility, automatic stabilisers

JEL Classification: E63, E32, H10

Suggested Citation

Attinasi, Maria Grazia and Checherita-Westphal, Cristina D. and Rieth, Malte, Personal Income Tax Progressivity and Output Volatility: Evidence from OECD Countries (September 1, 2011). ECB Working Paper No. 1380, Available at SSRN: https://ssrn.com/abstract=1920821 or http://dx.doi.org/10.2139/ssrn.1920821

Maria Grazia Attinasi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cristina D. Checherita-Westphal (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Malte Rieth

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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