Economics at your fingertips  

Macroeconomic stability under balanced‐budget rules and no‐income‐effect preferences

Jang-Ting Guo () and Yan Zhang

Pacific Economic Review, 2022, vol. 27, issue 1, 3-17

Abstract: It has been shown that under an additively separable preference formulation between consumption and hours worked, indeterminacy and sunspots may arise in a standard one‐sector or two‐sector real business cycle model when the labor tax rate is endogenously determined by a balanced‐budget rule with a pre‐specified constant level of government expenditures. Our analysis finds that this indeterminacy result will completely disappear within either setting if the period utility function is postulated to exhibit no income effect on the householdʼs demand for leisure. In particular, the modelʼs low‐tax steady state displays saddle‐path stability and equilibrium uniqueness; whereas the high‐tax steady state is either a source or a saddle point.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
Working Paper: Macroeconomic Stability under Balanced-Budget Rules and No-Income-Effect Preferences (2017) Downloads
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:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1361-374X

Access Statistics for this article

Pacific Economic Review is currently edited by Kenneth S. Chan and Yin-wong Cheung

More articles in Pacific Economic Review from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2022-07-31
Handle: RePEc:bla:pacecr:v:27:y:2022:i:1:p:3-17