Fiscal Policy and Fluctuations in a Monetary Model of Growth

Stefano Bosi () and Francesco Magris
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Stefano Bosi: EPEE, University of Evry

No 05-02, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: We consider an infinite horizon economy with representative agent, aggregate externalities on capital/labor ratio and liquidity constraint on income taxes. We show that the stationary rate of growth can be indeterminate for a wide range of elasticities of intertemporal substitution in consumption. Such a range is bounded from below by a value undergoing a saddle node bifurcation and from above by a value giving raise to a flip bifurcation. It follows that both multiple stationary rates of growth and cycles may emerge. In addition, we carry out a welfare analysis in terms of the optimal level of taxation, since public spending affects consumer utility, although in a separable way.

Pages: 14 pages
Date: 2005
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Related works:
Journal Article: Fiscal policy and fluctuations in a monetary model of growth (2005)
Working Paper: Fiscal policy and fluctuations in a monetary model of growth (2005)
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