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One Sector Models, Indeterminacy, and Productive Public Spending

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  • Sergey Slobodyan

Abstract

This 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.

Suggested Citation

  • Sergey Slobodyan, 2006. "One Sector Models, Indeterminacy, and Productive Public Spending," CERGE-EI Working Papers wp293, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp293
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    Cited by:

    1. Shu‐Hua Chen & Jang‐Ting Guo, 2013. "On indeterminacy and growth under progressive taxation and productive government spending," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(3), pages 865-880, August.
    2. Chen, Shu-Hua & Guo, Jang-Ting, 2014. "Progressive taxation and macroeconomic (in)stability with utility-generating government spending," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 174-183.
    3. Shu-Hua Chen & Jang-Ting Guo, 2019. "Progressive taxation as an automatic destabilizer under endogenous growth," Journal of Economics, Springer, vol. 127(1), pages 47-71, June.

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    More about this item

    Keywords

    indeterminacy; absolute instability; productive public spending; progressive taxation.;
    All these keywords.

    JEL classification:

    • 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

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