Indeterminacy, labor and capital income taxes, and non-linear tax schedules

Yoichi Gokan

Journal of Macroeconomics, 2013, vol. 36, issue C, 138-149

Abstract: Using a finance-constrained model, as in Barinci and Cheron (2001), this paper examines the role of procyclical and countercyclical tax rates on labor and capital income in aggregate fluctuations driven by the beliefs of agents. The analysis shows that the cyclicality of labor income tax rate has the monotonically negative impact on the possibility of indeterminacy, while the non-monotonic relations exist between the cyclicality of capital income tax rate and the likelihood of indeterminacy. It is shown that labor and capital income taxes have remarkably different impacts on the probability of indeterminacy for a sufficiently wide range of variability.

Keywords: Belief-driven aggregate fluctuations; Variability of tax rates on capital and labor income; Increasing returns-to-scale in production (search for similar items in EconPapers)
JEL-codes: C62 E32 E62 O42 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:36:y:2013:i:c:p:138-149

DOI: 10.1016/j.jmacro.2013.01.001

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