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Tax Rate Variability and Public Spending as Sources of Indeterminacy

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  • TERESA LLOYD-BRAGA
  • LEONOR MODESTO
  • THOMAS SEEGMULLER

Abstract

We consider a constant returns to scale, one sector economy with segmented asset markets of the Woodford type. We analyze the role of public spending, financed by labor income and consumption taxation, on the emergence of indeterminacy. We find that what is relevant for indeterminacy is the variability of the distortion introduced by government intervention. We show that the degree of public spending externalities in preferences affects the combinations between the tax rate and its variability under which indeterminacy occurs. Moreover, we find that consumption taxes can lead to local indeterminacy when asset markets are segmented. Copyright � 2008 Blackwell Publishing, Inc..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2008.00369.x
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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 10 (2008)
Issue (Month): 3 (06)
Pages: 399-421

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Handle: RePEc:bla:jpbect:v:10:y:2008:i:3:p:399-421

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References

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  1. Teresa Lloyd-Braga & Leonor Modesto & Thomas Seegmuller, 2008. "Tax Rate Variability and Public Spending as Sources of Indeterminacy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194395, HAL.
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Citations

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Cited by:
  1. Carine Nourry & Thomas Seegmuller & Alain Venditti, 2011. "Aggregate instability under balanced-budget consumption taxes: a re-examination," Working Papers halshs-00633609, HAL.
  2. Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2006. "Tax Rate Variability and Public Spending as Sources of Inderterminacy," CEPR Discussion Papers 5796, C.E.P.R. Discussion Papers.
  3. Kamiguchi, Akira & Tamai, Toshiki, 2011. "Can productive government spending be a source of equilibrium indeterminacy?," Economic Modelling, Elsevier, vol. 28(3), pages 1335-1340, May.
  4. Juin-Jen Chang & Jang-Ting Guo & Jhy-Yuan Shieh & Wei-Neng Wang, 2013. "Sectoral Composition of Government Spending and Macroeconomic (In)stability," IEAS Working Paper : academic research 13-A010, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  5. Teresa Lloyd-Braga & Leonor Modesto & Thomas Seegmuller, 2011. "Market distortions and local indeterminacy: a general approach," Working Papers halshs-00576582, HAL.
  6. Thomas Seegmuller & Leonor Modesto & Teresa Lloyd-Braga, 2008. "Market Imperfections and Endogenous Fluctuations," 2008 Meeting Papers 739, Society for Economic Dynamics.
  7. Jianpo Xue & Chong K. Yip, 2013. "Balanced-Budget Rules and Aggregate Instability: The Role of Consumption Taxes in a Monetary Economy," Working Papers 112013, Hong Kong Institute for Monetary Research.
  8. Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2013. "Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents," AMSE Working Papers 1314, Aix-Marseille School of Economics, Marseille, France, revised 08 Feb 2013.
  9. Ismael, Mohanad, 2011. "Progressive income taxes and macroeconomic instability," MPRA Paper 49917, University Library of Munich, Germany.
  10. Stefano Bosi & Thomas Seegmuller, 2008. "On the Role of Progressive Taxation in a Ramsey Model with Heterogeneous Households," Post-Print halshs-00331299, HAL.
  11. Bosi, Stefano & Seegmuller, Thomas, 2010. "On the role of progressive taxation in a Ramsey model with heterogeneous households," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 977-996, November.
  12. Teresa Lloyd-Braga & Leonor Modesto & Thomas Seegmuller, 2008. "Tax Rate Variability and Public Spending as Sources of Indeterminacy," Post-Print halshs-00194395, HAL.
  13. Takeo Hori & Noritaka Maebayashi, 2013. "Indeterminacy and utility-generating government spending under balanced-budget fiscal policies," Discussion Papers in Economics and Business 13-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  14. Lloyd-Braga, Teresa & Modesto, Leonor, 2012. "Can Taxes Stabilize the Economy in the Presence of Consumption Externalities?," IZA Discussion Papers 6876, Institute for the Study of Labor (IZA).

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