CAN INCOME TAX INCREASES BE INFLATIONARY? AN EXPOSITORY NOTE

Alan S. Blinder

23 citations0/0 files storedNational Tax Journal

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Monetary Policy and Economic Impact Economic and Fiscal Studies Fiscal Policy and Economic Growth

Abstract

Conventional macroeconomics classifies an increase in the rate of income taxation as an anti-inflation device because it reduces aggregate demand. However, an income tax hike may also constrict aggregate supply, making the effect on the price level ambiguous on purely theoretical grounds. This phenomena is investigated in the context of the conventional Hicks-Hansen IS-LM model, and a sufficient condition for an income tax hike to reduce the equilibrium price level is found. It is argued that this condition is very likely to be satisfied by the U.S. economy.

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1968A Simple Macroeconomic Model with a Government Budget Restraint 1998Fiscal and Monetary Policy Reconsidered

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1977Interrelations Between Domestic and International Theories of Inflation

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