Equilibrium dynamics under lump-sum taxation in an exchange economy with skewed endowments

Mikko Puhakka
Additional contact information
Mikko Puhakka: Bank of Finland

Macroeconomics from EconWPA

Abstract: I explore the dynamics in overlapping generations models with pure exchange and lump-sum taxes, when the second period after tax endowment is negative, and contrast the characteristics of equilibria to those of models with positive after tax endowments. In particular, if the intertemporal elasticity of substitution is less than unity, there can be only a two cycle or stable (ie indeterminate) equilibria for certain parameter values. With this value for that elasticity chaos and a cycle of any order can occur in a model with regular endowments. In a sense the lump-sum taxation in this model operates as a stabilizing device. The precise stability condition holds with a small discount factor and in economies with relatively high taxes in the first period. If the intertemporal elasticity of substitution is greater than unity, the steady state equilibria are unstable, and thus determinate, as is the case with the regular model.

Keywords: overlapping generations economy; saving; cycles; lump-sum taxation (search for similar items in EconPapers)
JEL-codes: E21 E32 (search for similar items in EconPapers)
Date: 2005-08-31
Note: Type of Document - pdf; pages: 25. Bank of Finland Discussion Papers 29/2004
View list of references

Downloads: (external link)
http://129.3.20.41/eps/mac/papers/0508/0508033.pdf (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: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0508033

Access Statistics for this paper

More papers in Macroeconomics from EconWPA
Series data maintained by EconWPA ().