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Multiple Steady States under the Balanced Budget Rule- a Generalization

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  • Fujio Takata

    (Graduate School of Economics, Kobe University)

Abstract

When governments levy taxes on labour income on the basis of a balanced budget rule, this rule causes a nonlinear system.Thus, multiple steady states in an economy exist, which can cause multiple movement patterns in an economy. This article deals with the existence of these multiple steady states. Schmitt-Groh Le and Uribe (1997) discusses this issue, but does not necessarily show the clear existence of steady states. On a more general assumption of increasing marginal disutility of labour, however, we show that there can be two steady states in the economy, one with superior, the other with inferior economic performance.

Suggested Citation

  • Fujio Takata, 2013. "Multiple Steady States under the Balanced Budget Rule- a Generalization," Discussion Papers 1310, Graduate School of Economics, Kobe University.
  • Handle: RePEc:koe:wpaper:1310
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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2013/1310.pdf
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    References listed on IDEAS

    as
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    6. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    7. 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.
    8. Guo, Jang-Ting & Harrison, Sharon G., 2004. "Balanced-budget rules and macroeconomic (in)stability," Journal of Economic Theory, Elsevier, vol. 119(2), pages 357-363, December.
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    Cited by:

    1. Fujio Takata, 2015. "Two Movement Patterns under the Balanced Budget Rule |Further Results," Discussion Papers 1510, Graduate School of Economics, Kobe University.

    More about this item

    Keywords

    Multiple steady states; Balanced budget rule; Labour income taxation; Divisible labour;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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