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

  • Takeo Hori

    ()

    (College of Economics, Aoyama Gakuin University)

  • Noritaka Maebayashi

    ()

    (Graduate School of Economics, Osaka University)

Registered author(s):

    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.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1313.pdf
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    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 13-13.

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    Length: 24 pages
    Date of creation: Jul 2013
    Date of revision:
    Handle: RePEc:osk:wpaper:1313
    Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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