Linearly Progressive Income Taxes and Stabilization

Nicolas Dromel (1, 2) , Patrick-Antoine Pintus (1)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 CREST - Centre de Recherche en Économie et Statistique

It has been shown that progressive income taxes may lead to saddle-point convergence when the marginal tax rate is assumed to be a continuously increasing function of income. This note shows that linearly progressive taxes may also immunize the economy against indeterminacy and sunspot equilibria. Therefore, our analysis suggests that exemption thresholds, as featured by prevailing tax codes, may help to stabilize the economy.

Mots clés: Business cycles; Progressive income taxes; Sunspots

Domaines: Economies et finances

Nicolas Dromel, Patrick-Antoine Pintus. Linearly Progressive Income Taxes and Stabilization. Research in Economics, 2007, 61 (1), pp.25-29. ⟨10.1016/j.rie.2006.12.002⟩. ⟨halshs-00641124⟩