GLOBAL ANALYSIS OF AN OVERLAPPING GENERATIONS ECONOMY WITH LAND

Andrew Mountford

Macroeconomic Dynamics, 2004, vol. 8, issue 5, 582-595

Abstract: This paper analyzes the global dynamics of a convex overlapping generations model with land. It derives a competitive equilibrium such that for every given initial level of capital per capita, the economy has a unique perfect-foresight equilibrium. It shows that the existence and uniqueness of this perfect-foresight equilibrium is robust to the presence of multiple steady-state levels of capital per capita. Furthermore, it shows that this model can provide an interesting insight into the economics of land taxation. Specifically, it shows that changes in the rate of land taxation may cause a bifurcation in the model's dynamical system and so may allow an economy with a low initial capital stock to break out of a “poverty trap” steady-state equilibrium.

Date: 2004
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