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Stability of a Small Open Economy under Nonlinear Income Taxation

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  • Chen, Been-Lon
  • Hu, Yunfang
  • Mino, Kazuo

Abstract

The stabilization effect of nonlinear income taxation is addressed in the standard model of small open economy. It is shown that if income taxation schedule is progressive, the small open economy tends hold saddle-point stability. On the other hand, if taxation on the interest income is regressive, then the small open economy may exhibit sunspot-driven fluctuations or it displays a diverging behavior.

Suggested Citation

  • Chen, Been-Lon & Hu, Yunfang & Mino, Kazuo, 2019. "Stability of a Small Open Economy under Nonlinear Income Taxation," MPRA Paper 98101, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98101
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    References listed on IDEAS

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    More about this item

    Keywords

    Taxation Rule; Stability; Equilibrium Indeterminacy; Small Open Economy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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