Multiple Steady States under the Balanced Budget Rule- a Generalization

Fujio Takata
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Fujio Takata: Graduate School of Economics, Kobe University

No 1310, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: When governments levy taxes on labour income on the basis of a balanced budget rule, this rule causes a nonlinear system.Thus, multiple steady states in an economy exist, which can cause multiple movement patterns in an economy. This article deals with the existence of these multiple steady states. Schmitt-Groh Le and Uribe (1997) discusses this issue, but does not necessarily show the clear existence of steady states. On a more general assumption of increasing marginal disutility of labour, however, we show that there can be two steady states in the economy, one with superior, the other with inferior economic performance.

Keywords: Multiple steady states; Balanced budget rule; Labour income taxation; Divisible labour (search for similar items in EconPapers)
JEL-codes: C62 E13 E21 E32 H24 (search for similar items in EconPapers)
Pages: 29pages
Date: 2013-10
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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