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The Conditions for Indeterminacy in Two Types of Balanced Budget Rules - Reconsidered

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  • Fujio Takata

    (Graduate School of Economics, Kobe University)

Abstract

When governments levy taxes on labor income on the basis of a balanced budget rule, and if a countercyclical income tax is adopted, two steady states in an economy exist, of which one can cause indeterminacy paths and a saddle path. Conversely, without a countercyclical income tax, indeterminacy disappears, as does one steady state, even if a balanced budget rule is adopted. This holds regardless of labor supply adjustment.

Suggested Citation

  • Fujio Takata, 2018. "The Conditions for Indeterminacy in Two Types of Balanced Budget Rules - Reconsidered," Discussion Papers 1806, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:1806
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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2018/1806.pdf
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    References listed on IDEAS

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