The Role of Income Tax Progressivity in GDP Smoothening: Empirical Analysis
|Author:||Mgr. Pavel Žofák|
|Year:||2017 - summer|
|Leaders:|| PhDr. Jaromír Baxa Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:||M.A. with distinction from the Director of IES FSV UK for an extraordinarily good master diploma thesis.|
|Abstract:||This thesis studies the relationship of income tax progressivity and output volatility. Using our
dataset of 31 OECD countries and Bayesian model averaging (BMA) approach to address the
model uncertainty issue, we find positive evidence that higher income tax progressivity leads to
lower output volatility. This effect is robust to different prior specifications in BMA and to
different tax progressivity measures, including our newly constructed measure which is based on
the slope of the average tax curve. We also find a strong effect of tax progressivity on the
consumption volatility and the volatility of hours worked which we see as the main channels for
the reducing effect of tax progressivity on output volatility.