One Sector Models, Indeterminacy, and Productive Public Spending
AbstractThis paper studies the influence of different modelling assumptions on the determinacy of the steady state in one—sector models of economic growth with externalities in the production function. We show that productive public spending subject to congestion, combined with variable capital utilization, can lead to indeterminacy at very low degrees of social increasing returns to scale. We perform a calibration of the model to the tax regimes observed in the USA. We shed some light on the conflicting effects of progressive taxation on the steady state stability reported in the literature. Finally, we extensively discuss the features of the model that lead to an indeterminate rather than an explosive steady state once the saddle—path stability is broken.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp293.
Date of creation: Mar 2006
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indeterminacy; absolute instability; productive public spending; progressive taxation.;
Other versions of this item:
- Sergey Slobodyan, 2004. "One Sector Models, Indeterminacy, and Productive Public Spending," Computing in Economics and Finance 2004 314, Society for Computational Economics.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-25 (All new papers)
- NEP-DGE-2006-03-25 (Dynamic General Equilibrium)
- NEP-MAC-2006-03-25 (Macroeconomics)
- NEP-PBE-2006-03-25 (Public Economics)
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.:
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