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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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File URL: http://www.arts.cornell.edu/econ/CAE/taxes.pdf
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Bibliographic Info

Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 01-17.

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Date of creation: Apr 2001
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Handle: RePEc:ecl:corcae:01-17

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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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1. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
   
   • Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-50, June.
2. Antonio Ladron de Guevara & Salvador Ortigueira & Manuel S. Santos, 1994. "Equilibrium Dynamics in Two-Sector Models of Endogenous Growth," Working Papers 9403, Centro de Investigacion Economica, ITAM.
   
   • 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.
3. Ellen R. McGrattan & James A. Schmitz, Jr., 1998. "Explaining cross-country income differences," Staff Report 250, Federal Reserve Bank of Minneapolis.
   
   • 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.
4. Matsuyama, K., 1996. "Growing through cycles," DELTA Working Papers 96-18, DELTA (Ecole normale supérieure).
   
   • Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
   • Matsuyama, Kiminori, 1996. "Growing Through Cycles," Economics Series 40, Institute for Advanced Studies.
   • Kiminori Matsuyama, 1996. "Growing Through Cycles," Discussion Papers 1203, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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.
   
   • Mulligan, Casey B & Sala-i-Martin, Xavier, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 739-73, August.
   • Mulligan, C.B. & Sala-i-Martin, X., 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," Papers 651, Yale - Economic Growth Center.
6. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
   
   • 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.
   • Sergio T. Rebelo, 1992. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
7. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper 9324, Federal Reserve Bank of Dallas.
   
   • 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.
8. Salvador Ortigueira, 1999. "Equilibrium Indeterminacy in an Endogenous Growth Model: Debt as a Coordination Device," Working Papers 9901, Centro de Investigacion Economica, ITAM.

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Citations

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Cited by:

1. Turnovsky, Stephen J. & Garci­a-Peñalosa, Cecilia, 2008. "Distributional dynamics in a neoclassical growth model: The role of elastic labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1399-1431, May.
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.
   
   • Leslie J. Reinhorn, 2009. "Dynamic Optimal Taxation with Human Capital," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 38.
3. Wei-Bin Zhang, 2010. "Growth, economic structure, and residential distribution of a small city," International Review of Economics, Springer, vol. 57(1), pages 47-78, March.
4. Kei Hosoya, 2003. "Tax financed government health expenditure and growth with capital deepening externality," Economics Bulletin, AccessEcon, vol. 5(14), pages 1-10.
5. Santos, Manuel S., 2002. "On Non-existence of Markov Equilibria in Competitive-Market Economies," Journal of Economic Theory, Elsevier, vol. 105(1), pages 73-98, July.
6. Dirk Bethmann, 2007. "Homogeneity, Saddle Path Stability, and Logarithmic Preferences in Economic Models," Discussion Paper Series 0702, Institute of Economic Research, Korea University.
7. Ghiglino, Christian, 2002. "Introduction to a General Equilibrium Approach to Economic Growth," Journal of Economic Theory, Elsevier, vol. 105(1), pages 1-17, July.
8. 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.
9. Stephen Turnovsky & Cecilia Garcia Penalosa, 2006. "The Dynamics of Wealth and Income distribution in a Neoclassical Growth Model," Computing in Economics and Finance 2006 318, Society for Computational Economics.
   
   • 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.
10. 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).
11. Garcia-Belenguer, Fernando, 2007. "Stability, global dynamics and Markov equilibrium in models of endogenous economic growth," Journal of Economic Theory, Elsevier, vol. 136(1), pages 392-416, September.
12. Manuel S. Santos, 2003. "Simulation-Based Estimation Of Dynamic Models With Continuous Equilibrium Solutions," Economics Working Papers we034716, Universidad Carlos III, Departamento de Economía.
13. Hyun Park, 2009. "Ramsey fiscal policy and endogenous growth," Economic Theory, Springer, vol. 39(3), pages 377-398, June.
14. Kei Hosoya, 2003. "Tax financed government health expenditure and growth with capital deepening externality," Economics Bulletin, AccessEcon, vol. 5(14), pages 1-10.
15. Santos, Manuel S., . "Simulation-based estimation of dynamic models with continuous equilibrium solutions," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/298, Universidad Carlos III de Madrid.
16. Duernecker, Georg, 2007. "Growth Effects of Consumption Jealousy in a Two-Sector Model," Economics Series 201, Institute for Advanced Studies.
17. Santos, Manuel S., 2004. "Simulation-based estimation of dynamic models with continuous equilibrium solutions," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 465-491, June.
18. Hu, Yunfang & Mino, Kazuo, 2004. "Fiscal Policy, Home Production and Growth Dynamics," MPRA Paper 17017, University Library of Munich, Germany.

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