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Indeterminacy and utility-generating government spending under balanced-budget fiscal policies

Author

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  • Takeo Hori

    (College of Economics, Aoyama Gakuin University)

  • Noritaka Maebayashi

    (Graduate School of Economics, Osaka University)

Abstract

We reexamine indeterminacy and utility-generating public spending under balanced- budget rules in a simple one-sector growth model. The introduction of consumption tax (subsidy) as well as subsidies for savings and labor modify indeterminacy con- ditions in the existing studies. We show that if consumption subsidies and income taxes exist, indeterminacy occurs even when private and public consumption are Edgeworth substitutes and public spending and leisure are separable in the utility function. Indeterminacy also occurs even when they are weak Edgeworth comple- ments if consumption tax and subsidies for savings and labor are present. Surpris- ingly, when they are strong Edgeworth complements, the stronger external effects of public consumption tend to lower the possibility of equilibrium indeterminacy in the presence of consumption tax.

Suggested Citation

  • Takeo Hori & Noritaka Maebayashi, 2013. "Indeterminacy and utility-generating government spending under balanced-budget fiscal policies," Discussion Papers in Economics and Business 13-13, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1313
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    References listed on IDEAS

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    4. Fujisaki, Seiya, 2016. "Aggregate Stability in Monetary Economy with Consumption Tax and Taylor Rule," MPRA Paper 69833, University Library of Munich, Germany.

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    More about this item

    Keywords

    utility-generating public spending; indeterminacy; balanced-budget rule;
    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; Modern Monetary Theory

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