Balanced-budget consumption taxes and aggregate stability in a small open economy

Qinglai Meng and Jianpo Xue

Economics Letters, 2015, vol. 137, issue C, 214-217

Abstract: In a small open economy facing a perfect world capital market, this paper shows that if the government follows a balanced-budget fiscal policy based on endogenous consumption tax rates, then the steady state is saddle-path stable and hence beliefs-driven aggregate instability can be ruled out. This result is in contrast to those obtained in some closed economy models, and it suggests that unrestricted world capital mobility can help stabilize the economy under the balanced-budget fiscal policy based on consumption taxation.

Keywords: Balanced-budget rules; Consumption taxes; Small open economy; Indeterminacy (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016517651500453X
Full text for ScienceDirect subscribers only

Related works:
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: https://EconPapers.repec.org/RePEc:eee:ecolet:v:137:y:2015:i:c:p:214-217

DOI: 10.1016/j.econlet.2015.11.003

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().