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Equilibrium Dynamics in a Two-Sector Model with Taxes

  • Ortigueira, Salvador

    (Cornell U)

  • Santos, Manuel S.

    (Arizona State U, Tempe)

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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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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  1. 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.
  2. Mulligan, C.B. & Sala-i-Martin, X., 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," Papers 651, Yale - Economic Growth Center.
  3. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  4. 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.
  5. Salvador Ortigueira, 1999. "Equilibrium Indeterminacy in an Endogenous Growth Model: Debt as a Coordination Device," Working Papers 9901, Centro de Investigacion Economica, ITAM.
  6. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  7. Matsuyama, Kiminori, 1996. "Growing Through Cycles," Economics Series 40, Institute for Advanced Studies.
  8. 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.
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