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Equilibrium Dynamics in a Two-Sector Model with Taxes

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Author Info
Manuel Santos () (W. P. Carey School of Business Department of Economics)
Salvador Ortigueira (Cornell University)

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Abstract

In this paper we are concerned with the equilibrium dynamics of a two-sector model of endogenous growth with distortionary taxes. We show that for certain parameters values and tax schemes every equilibrium orbit--except the steady state solution--is non-interior; i.e., there are times in which one of the sectors is inactive. This analysis confirms that in multisector models the set of easily checkable, universal conditions that can guarantee the interiority of equilibrium solutions is rather limited.

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Paper provided by Department of Economics, W. P. Carey School of Business, Arizona State University in its series Working Papers with number 2133332.

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Handle: RePEc:asu:wpaper:2133332

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Find related papers by JEL classification:
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McGrattan, Ellen R. & Schmitz, James Jr., 1999. "Explaining cross-country income differences," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 10, pages 669-737 Elsevier. [Downloadable!] (restricted)
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  2. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June. [Downloadable!] (restricted)
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  3. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January. [Downloadable!] (restricted)
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  4. Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
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  5. Casey B. Mulligan & Xavier Sala-i-Martin, 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," NBER Working Papers 3986, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Salvador Ortigueira, 1999. "Equilibrium Indeterminacy in an Endogenous Growth Model: Debt as a Coordination Device," Working Papers 9901, Centro de Investigacion Economica, ITAM. [Downloadable!]
  7. Bond, Eric W. & Wang, Ping & Yip, Chong K., 1996. "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory, Elsevier, vol. 68(1), pages 149-173, January. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Manuel Santos, . "On Non-Existence of Markov Equilibria in Competitive-Market Economies," Working Papers 2133305, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
  2. Leslie Reinhorn, 2004. "Dynamic optimal taxation with human capital," Money Macro and Finance (MMF) Research Group Conference 2003 77, Money Macro and Finance Research Group. [Downloadable!]
  3. García-Belenguer, Fernando, 2006. "Stability, Global Dynamics and Markov Equilibrium in Models of Economic Growth," Working Papers in Economic Theory 2006/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History). [Downloadable!]
  4. Manuel S. Santos, 2003. "Simulation-Based Estimation Of Dynamic Models With Continuous Equilibrium Solutions," Economics Working Papers we034716, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  5. Hyun Park, 2009. "Ramsey fiscal policy and endogenous growth," Economic Theory, Springer, vol. 39(3), pages 377-398, June. [Downloadable!] (restricted)
  6. Kei Hosoya, 2003. "Tax financed government health expenditure and growth with capital deepening externality," Economics Bulletin, Economics Bulletin, vol. 5(14), pages 1-10. [Downloadable!]
  7. Duernecker, Georg, 2007. "Growth Effects of Consumption Jealousy in a Two-Sector Model," Economics Series 201, Institute for Advanced Studies. [Downloadable!]
  8. Stephen J. Turnovsky & Cecilia Garcia-Pe–alosa, 2006. "The Dynamics of Wealth and Income Distribution in a Neoclassical Growth Model," IDEP Working Papers 0604, Institut d'economie publique (IDEP), Marseille, France, revised Jul 2006. [Downloadable!]
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  9. Hu, Yunfang & Mino, Kazuo, 2004. "Fiscal Policy, Home Production and Growth Dynamics," MPRA Paper 17017, University Library of Munich, Germany. [Downloadable!]
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