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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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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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Citations

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Cited by:
  1. Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2011. "Market Distortions and Local Indeterminacy: A General Approach," IZA Discussion Papers 5603, Institute for the Study of Labor (IZA).
  2. repec:hal:journl:halshs-00194395 is not listed on IDEAS
  3. Takeo Hori & Noritaka Maebayashi, 2013. "Indeterminacy and utility-generating government spending under balanced-budget fiscal policies," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 13-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  4. Ismael, Mohanad, 2011. "Progressive income taxes and macroeconomic instability," MPRA Paper 49917, University Library of Munich, Germany.
  5. Teresa Lloyd-Braga & Leonor Modesto & Thomas Seegmuller, 2008. "Tax Rate Variability and Public Spending as Sources of Indeterminacy," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 10(3), pages 399-421, 06.
  6. 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.
  7. Thomas Seegmuller & Leonor Modesto & Teresa Lloyd-Braga, 2008. "Market Imperfections and Endogenous Fluctuations," 2008 Meeting Papers 739, Society for Economic Dynamics.
  8. Carine Nourry & Thomas Seegmuller & Alain Venditti, 2011. "Aggregate instability under balanced-budget consumption taxes: a re-examination," Working Papers halshs-00633609, HAL.
  9. Stefano Bosi & Thomas Seegmuller, 2008. "On the Role of Progressive Taxation in a Ramsey Model with Heterogeneous Households," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00331299, HAL.
  10. 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).
  11. Jang-Ting Guo & Juin-Jen Chang & Jhy-Yuan Shieh & Wei-Neng Wang, 2013. "Sectoral Composition of Government Spending and Macroeconomic (In)stability," Working Papers 201305, University of California at Riverside, Department of Economics, revised Sep 2013.
  12. repec:hal:journl:halshs-00331299 is not listed on IDEAS
  13. Jianpo Xue & Chong K. Yip, 2013. "Balanced-Budget Rules and Aggregate Instability: The Role of Consumption Taxes in a Monetary Economy," Working Papers, Hong Kong Institute for Monetary Research 112013, Hong Kong Institute for Monetary Research.
  14. Kamiguchi, Akira & Tamai, Toshiki, 2011. "Can productive government spending be a source of equilibrium indeterminacy?," Economic Modelling, Elsevier, Elsevier, vol. 28(3), pages 1335-1340, May.

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