Stabilization Effects of Taxation Rules in Small-Open Economies with Endogenous Growth

Been-Lon Chen, Yunfang Hu and Kazuo Mino

No 946, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper studies stabilization effects of nonlinear income taxation in small open economies with endogenous growth. We show that in the standard setting where domes- tic households freely lend to or borrow from foreign households under an exogenously given world interest rate, progressive taxation gives rise to equilibrium indeterminacy, while regressive taxation establishes equilibrium determinacy. These policy effects do not necessarily hold, either if the time discount rate is endogenously determined or if the world interest rate is elastic.

Keywords: Taxation Rules; Equilibrium Indeterminacy; Small-Open Economies; En-dogenous Growth (search for similar items in EconPapers)
JEL-codes: E62 O41 (search for similar items in EconPapers)
Pages: 32pages
Date: 2016-07
New Economics Papers: this item is included in nep-gro and nep-mac
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