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Fiscal policy and fluctuations in a monetary model of growth

Stefano Bosi () and Francesco Magris
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Stefano Bosi: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne

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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's utility, although in a separable way. © 2005 University of Venice. Published by Elsevier Ltd. All rights reserved.

Date: 2005-06
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Published in Research in Economics, Elsevier, 2005, 59 (2), pp.110--118. ⟨10.1016/j.rie.2005.04.007⟩

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DOI: 10.1016/j.rie.2005.04.007

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