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Stabilization Effects of Taxation Rules in Small-Open Economies with Endogenous Growth

Author

Listed:
  • Been-Lon Chen

    (Institute of Economics, Academia Sinica)

  • Yunfang Hu

    (Graduate School of Economics, Kobe University)

  • Kazuo Mino

    (Faculty of Economics, Doshisha University)

Abstract

This paper studies stabilization effects of nonlinear income taxation in small open economies with endogenous growth. We show that in the standard setting where domes- tic households freely lend to or borrow from foreign households under an exogenously given world interest rate, progressive taxation gives rise to equilibrium indeterminacy, while regressive taxation establishes equilibrium determinacy. These policy effects do not necessarily hold, either if the time discount rate is endogenously determined or if the world interest rate is elastic.

Suggested Citation

  • Been-Lon Chen & Yunfang Hu & Kazuo Mino, 2016. "Stabilization Effects of Taxation Rules in Small-Open Economies with Endogenous Growth," KIER Working Papers 946, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:946
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    References listed on IDEAS

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    More about this item

    Keywords

    Taxation Rules; Equilibrium Indeterminacy; Small-Open Economies; En-dogenous Growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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