Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies
AbstractWe examine the impact of balanced-budget consumption taxes on the existence of expectations-driven business cycles in two-sector economies with infinitely-lived households. We prove that, whatever the relative capital intensity difference across sectors, aggregate instability can occur if the consumption tax rate is not too low. Moreover, we show through a numerical exercise based on empirically plausible tax rates that endogenous business-cycle fluctuations may be a source of instability for all OECD countries, including the US.
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Bibliographic InfoPaper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1312.
Length: 17 pages
Date of creation: Mar 2013
Date of revision: Sep 2012
Aggregate instability; indeterminacy; expectations-driven fluctuations; consumption taxes; balanced-budget rule; infinite-horizon two-sector model.;
Other versions of this item:
- Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2013. "Destabilizing balanced-budget consumption taxes in multi-sector economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 113-130, 03.
- Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2012. "Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies," Working Papers halshs-00796685, HAL.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-03-09 (Accounting & Auditing)
- NEP-ALL-2013-03-09 (All new papers)
- NEP-DGE-2013-03-09 (Dynamic General Equilibrium)
- NEP-PBE-2013-03-09 (Public Economics)
- NEP-PUB-2013-03-09 (Public Finance)
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