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Profit Taxation and Aggregate Price Stickiness

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  • Zhiyong An

    (Fiscal Affairs Department, International Monetary Fund)

Abstract

This paper studies the impact of profit taxation on aggregate price stickiness in New Keynesian economics by introducing profit taxation into An (2009). We show that the impact is theoretically ambiguous. Our result has three key implications. First, it disagrees with the recent conclusion drawn by Kleven and Kreiner (2003) that "taxation of profits increases the degree of price rigidity" (p.1128). Second, it is also at odds with the traditional Keynesian idea that taxes act as automatic stabilizers. Finally, it suggests that fiscal and monetary policies can coordinate their impact on aggregate price stickiness to stabilize the economy.

Suggested Citation

  • Zhiyong An, 2022. "Profit Taxation and Aggregate Price Stickiness," Annals of Economics and Finance, Society for AEF, vol. 23(2), pages 279-289, November.
    • Handle: RePEc:cuf:journl:y:2022:v:23:i:2:an
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    References listed on IDEAS

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    More about this item

    Keywords

    Aggregate Price Stickiness; Economic Fluctuation; Profit Taxation;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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