Business Cycles with Progressive Income Taxation

Wei-Bin Zhang

International Journal of Business and Management, 2017, vol. 5, issue 2, 78-95

Abstract: The paper generalizes the two-sector growth model for a small-open economy with endogenous wealth accumulation and public goods proposed by Zhang (2016). The main generalization is to allow all the time-independent parameters in Zhang?s model to be time-dependent. The generalization makes it possible to take any exogenous changes in any parameter at any time into account. The model is constructed in a dynamic general equilibrium framework with heterogeneous households and progressive income taxation. We simulate the model to demonstrate existence of equilibrium and motion of the dynamic system. We demonstrate how business cycles appear in the economic system when it is confronted with different exogenous periodic perturbations.

Keywords: business cycle; progressive income taxation; wealth accumulation; Walrasian theory; endogenous labor supply (search for similar items in EconPapers)
JEL-codes: E32 H24 J20 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:sek:jijobm:v:5:y:2017:i:2:p:78-95

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