Progressive taxation and macroeconomic stability in two-sector models with social constant returns

Been-Lon Chen, Mei Hsu () and Yu-Shan Hsu ()
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Mei Hsu: National Taiwan Normal University
Yu-Shan Hsu: National Chung Cheng University

Journal of Economics, 2018, vol. 125, issue 1, No 3, 68 pages

Abstract: Abstract It has been shown that, in the two-sector Benhabib–Farmer–Guo model with technologies of social increasing returns that exhibits indeterminacy, progressive income taxes de-stabilize the economy. This paper revisits the robustness of the tax implication in the two-sector Benhabib–Nishimura model with technologies of social constant returns that exhibits indeterminacy. We show that a progressive income tax stabilizes the economy against sunspot fluctuations, and thus the tax implication based on the two-sector Benhabib–Farmer–Guo model is not robust.

Keywords: Two-sector model; Progressive income taxes; Indeterminacy; No-income-effect utility; Social constant returns (search for similar items in EconPapers)
JEL-codes: E32 O41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Working Paper: Progressive Taxation and Macroeconomic Stability in Two‐sector Models with Social Constant Returns (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:125:y:2018:i:1:d:10.1007_s00712-018-0596-2

DOI: 10.1007/s00712-018-0596-2

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