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Nonseparable preferences do not rule out aggregate instability under balanced-budget rules: a note

Nicolas Abad, Thomas Seegmuller and Alain Venditti ()
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Thomas Seegmuller: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales

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Abstract: We investigate the role of nonseparable preferences in the occurrence of macroeconomic instability under a balanced-budget rule where government spending is financed by a tax on labor income. Considering a one-sector neoclassical growth model with a large class of nonseparable utility functions, we find that expectations-driven fluctuations occur easily when consumption and labor are Edgeworth substitutes or weak Edgeworth complements. Under these assumptions, an intermediate range of tax rates and a sufficiently low elasticity of intertemporal substitution in consumption lead to instability.

Keywords: Economie; quantitative (search for similar items in EconPapers)
Date: 2017-01
Note: View the original document on HAL open archive server: https://hal-amu.archives-ouvertes.fr/hal-01505770
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Published in Macroeconomic Dynamics, 2017, 21 (1), pp.259-277. 〈10.1017/S1365100515000358〉

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Related works:
Journal Article: NONSEPARABLE PREFERENCES DO NOT RULE OUT AGGREGATE INSTABILITY UNDER BALANCED-BUDGET RULES: A NOTE (2017) Downloads
Working Paper: Non-Separable Preferences do not Rule Out Aggregate Instability under Balanced-Budget Rules: A Note (2014) Downloads
Working Paper: Non-Separable Preferences do not Rule Out Aggregate Instability under Balanced-Budget Rules: A Note (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01505770

DOI: 10.1017/S1365100515000358

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