Time‐varying consumption tax, productive government spending, and aggregate instability

Mauro Bambi and Alain Venditti
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Mauro Bambi: Durham University

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Abstract: In this paper we investigate if government balanced-budget rules together with endogenous taxation may lead to aggregate instability in an endogenous growth framework. After highlighting the differences with the exogenous growth framework, we prove that under counter-cyclical consumption taxes, while there exists a unique balanced growth path, sunspot equilibria based on self-fulfilling expectations occur through a form of global indeterminacy. In addition, we argue that this result is empirically plausible for a large set of OECD countries and that it may also emerge with endogenous income taxes.

Keywords: endogenous growth; time‐varying consumption tax; global indeterminacy; self‐fulfilling expectation; sunspot equilibria (search for similar items in EconPapers)
Date: 2019-04-01
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02478346v1
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Published in International Journal of Economic Theory, 2019, 17 (2), pp.190-215. ⟨10.1111/ijet.12216⟩

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Related works:
Journal Article: Time‐varying consumption tax, productive government spending, and aggregate instability (2021)
Working Paper: Time-varying Consumption Tax, Productive Government Spending, and Aggregate Instability (2018)
Working Paper: Time-varying Consumption Tax, Productive Government Spending, and Aggregate Instability (2018)
Working Paper: Time-varying Consumption Tax, Productive Government Spending, and Aggregate Instability (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02478346

DOI: 10.1111/ijet.12216

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