Tax Policy and Aggregate Stability in an Overlapping Generations Model

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

No 202112, Working Papers from University of California at Riverside, Department of Economics

Abstract: In the context of a two-period non-monetary overlapping generations model with Cobb-Douglas preference and technological specifications, this paper explores the quantitative interrelations between equilibrium (in)determinacy versus (i) a progressive tax schedule on wage income and (ii) a balanced-budget rule with endogenous labor taxation. In sharp contrast to previous studies on a one-sector representative-agent macroeconomy, we find that both fiscal formulations are stabilizing instruments against cyclical fluctuations driven by agents' self-fulfilling beliefs. The key policy implication of our no-indeterminacy result is that depending on what is the underlying analytical environment, countercyclical income taxation may stabilize or destabilize the business cycle.

Keywords: Tax Policy; Equilibrium Indeterminacy; Overlapping Generations Model. (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-dge, nep-isf, nep-mac and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economics.ucr.edu/repec/ucr/wpaper/202112.pdf First version, 2021 (application/pdf)

Related works:
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:202112

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 ().