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Tax Rate Variability and Public Spending as Sources of Indeterminacy

Teresa Lloyd‐braga, Leonor Modesto () and Thomas Seegmuller ()
Authors registered in the RePEc Author Service: Teresa Lloyd-Braga ()

Journal of Public Economic Theory, 2008, vol. 10, issue 3, 399-421

Abstract: We consider a constant returns to scale, one sector economy with segmented asset markets of the Woodford type. We analyze the role of public spending, financed by labor income and consumption taxation, on the emergence of indeterminacy. We find that what is relevant for indeterminacy is the variability of the distortion introduced by government intervention. We show that the degree of public spending externalities in preferences affects the combinations between the tax rate and its variability under which indeterminacy occurs. Moreover, we find that consumption taxes can lead to local indeterminacy when asset markets are segmented.

Date: 2008
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https://doi.org/10.1111/j.1467-9779.2008.00369.x

Related works:
Working Paper: Tax Rate Variability and Public Spending as Sources of Indeterminacy (2008) Downloads
Working Paper: Tax Rate Variability and Public Spending as Sources of Inderterminacy (2006) Downloads
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