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Fiscal Policy and Fluctuations in a Monetary Model of Growth

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  • Stefano Bosi

    ()
    (EPEE, University of Evry)

  • Francesco Magris

    (EPEE, University of Evry)

Abstract

We consider an infinite horizon economy with representative agent, aggregate externalities on capital/labor ratio and liquidity constraint on income taxes. We show that the stationary rate of growth can be indeterminate for a wide range of elasticities of intertemporal substitution in consumption. Such a range is bounded from below by a value undergoing a saddle node bifurcation and from above by a value giving raise to a flip bifurcation. It follows that both multiple stationary rates of growth and cycles may emerge. In addition, we carry out a welfare analysis in terms of the optimal level of taxation, since public spending affects consumer utility, although in a separable way.

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File URL: http://epee.univ-evry.fr/RePEc/2005/05-02.pdf
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Bibliographic Info

Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 05-02.

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Length: 14 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:eve:wpaper:05-02

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  1. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  4. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  5. Cazzavillan, Guido, 1996. "Public Spending, Endogenous Growth, and Endogenous Fluctuations," Journal of Economic Theory, Elsevier, vol. 71(2), pages 394-415, November.
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