Balanced-Budget Rules and Macroeconomic Stability with Overlapping Generations

Jang-Ting Guo and Yan Zhang ()
Additional contact information
Yan Zhang: Zhongnan University of Economics and Law

No 202109, Working Papers from University of California at Riverside, Department of Economics

Abstract: In the context of a stylized two-period overlapping generations model, this paper examines the macroeconomic (in)stability effects of a balanced-budget rule whereby constant government spending is financed by endogenous taxation on agents' labor income or consumption expenditures. In sharp contrast to previous studies for a representative-agent framework, our baseline economy always exhibits local determinacy and equilibrium uniqueness, hence both labor and consumption taxes are stabilizing instruments against cyclical fluctuations driven by animal spirits. Moreover, this no-indeterminacy result and associated dynamic equivalence between endogenous labor versus consumption taxation remain qualitatively robust to various modifications in the household-preference or firm-production formulations.

Keywords: Balanced-Budget Rules; Indeterminacy; Overlapping Generations Model. (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economics.ucr.edu/repec/ucr/wpaper/202109.pdf First version, 2021 (application/pdf)

Related works:
Journal Article: Balanced-budget rules and macroeconomic stability with overlapping generations (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202109

Access Statistics for this paper

More papers in Working Papers from University of California at Riverside, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kelvin Mac ().