On Indeterminacy and Growth under Progressive Taxation and Utility-Generating Government Spending

Jang-Ting Guo and Shu-Hua Chen
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Shu-Hua Chen: National Taipei University

No 201604, Working Papers from University of California at Riverside, Department of Economics

Abstract: We examine the theoretical interrelations between progressive income taxation and macroeconomic (in)stability in an otherwise standard one-sector AK model of endogenous growth with utility-generating government purchases of goods and services. In sharp contrast to traditional Keynesian-type stabilization policies, progressive taxation operates like an automatic destabilizer that generates equilibrium indeterminacy and belief-driven fluctuations in our endogenously growing macroeconomy. This instability result is obtained regardless of (i) the degree of the public-spending preference externality, and (ii) whether private and public consumption expenditures are substitutes, complements, or additively separable in the household's utility function.

Keywords: Progressive Income Taxation; Equilibrium (In)determinacy; Utility-Generating Government Spending; Endogenous Growth. (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-dge, nep-gro, nep-mac and nep-upt
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: On Indeterminacy and Growth under Progressive Taxation and Utility‐Generating Government Spending (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201604

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