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Fiscal policy and fluctuations in a monetary model of growth

Author

Listed:
  • Stefano Bosi

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Francesco Magris

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

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's utility, although in a separable way. © 2005 University of Venice. Published by Elsevier Ltd. All rights reserved.

Suggested Citation

  • Stefano Bosi & Francesco Magris, 2005. "Fiscal policy and fluctuations in a monetary model of growth," Post-Print hal-02877997, HAL.
    • Handle: RePEc:hal:journl:hal-02877997
    DOI: 10.1016/j.rie.2005.04.007
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