Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate

Guillaume Rocheteau

Oxford Economic Papers, 1999, vol. 51, issue 3, 399-409

Abstract: This article examines a new case of indeterminacy of the equilibrium unemployment rate due to the financing of government expenditure. Under a balanced-budget rule, the existence of multiple equilibria is a generic property of the matching model of equilibrium unemployment, equilibria are Pareto-ranked, and endogenous cycles occur for some values of the parameters. Government can lead the economy to a high equilibrium by fixing the tax level and then matching its expenditure with its receipts. Copyright 1999 by Royal Economic Society.

Date: 1999
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