One Sector Models, Indeterminacy, and Productive Public Spending

Slobodyan, Sergey

One Sector Models, Indeterminacy, and Productive Public Spending

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper studies the influence of different modelling assumptions on the determinacy of the steady state in one—sector models of economic growth with externalities in the production function. We show that productive public spending subject to congestion, combined with variable capital utilization, can lead to indeterminacy at very low degrees of social increasing returns to scale. We perform a calibration of the model to the tax regimes observed in the USA. We shed some light on the conflicting effects of progressive taxation on the steady state stability reported in the literature. Finally, we extensively discuss the features of the model that lead to an indeterminate rather than an explosive steady state once the saddle—path stability is broken.

Keywords: indeterminacy; absolute instability; productive public spending; progressive taxation. (search for similar items in EconPapers)
JEL-codes: E32 E62 H41 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: One Sector Models, Indeterminacy, and Productive Public Spending (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp293

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