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Taxation, income redistribution and debt dynamics in a seven-equation model of the business cycle

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  • Colacchio, Giorgio

Abstract

In this paper we investigate the economic dynamics of a seven-equation model of the business cycle. The main distinctive features of the model are related to: (a) the role played by the public sector in redeploying income between workers and capitalists, since it is assumed that the bargaining power of the two classes affects tax rates and transfers levied upon them; (b) the influence that past events have on the agents’ current behavior, with particular regard to consumption patterns; (c) the specification of firms’ investment function, which incorporate Keynesian and Harrodian elements by assuming that investments are a function of both the difference between interest and profit rate and the discrepancy between actual and desired capital to output ratio. Since all these assumptions imply possible balance sheets disequilibrium, particular regard is dedicated to the analysis of macroagents’ debt dynamics. Special emphasis is placed on the analysis of the destabilization of equilibria via Hopf bifurcations, which leads to the emergence of an interesting and rich cyclical dynamics.

Suggested Citation

  • Colacchio, Giorgio, 2014. "Taxation, income redistribution and debt dynamics in a seven-equation model of the business cycle," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 140-165.
  • Handle: RePEc:eee:jeborg:v:106:y:2014:i:c:p:140-165
    DOI: 10.1016/j.jebo.2014.06.009
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    Cited by:

    1. Guglielmo Forges Davanzati & Lucia Mongelli, 2017. "Does Rising Unemployment Lead To Policies Of Labour Flexibility? The Italian Case (1990 – 2013)," Working Papers 0026, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.

    More about this item

    Keywords

    Economic dynamics; Hopf bifurcation; Business cycle; Income redistribution; Debt dynamics;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • 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

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