Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies

Kazuo Nishimura, Carine Nourry, Thomas Seegmuller and Alain Venditti

No 1312, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We examine the impact of balanced-budget consumption taxes on the existence of expectations-driven business cycles in two-sector economies with infinitely-lived households. We prove that, whatever the relative capital intensity difference across sectors, aggregate instability can occur if the consumption tax rate is not too low. Moreover, we show through a numerical exercise based on empirically plausible tax rates that endogenous business-cycle fluctuations may be a source of instability for all OECD countries, including the US.

Keywords: Aggregate instability; indeterminacy; expectations-driven fluctuations; consumption taxes; balanced-budget rule; infinite-horizon two-sector model. (search for similar items in EconPapers)
JEL-codes: C62 E32 H20 O41 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2013-03, Revised 2012-09
New Economics Papers: this item is included in nep-acc, nep-dge, nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Destabilizing balanced-budget consumption taxes in multi-sector economies (2023)
Journal Article: Destabilizing balanced-budget consumption taxes in multi-sector economies (2013)
Working Paper: Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1312

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