Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies

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

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Abstract: We examine the impact of balanced-budget consumption taxes on the existence of expectations-driven business cycles in two-sector economies with infinitely-lived households. We prove that, whatever the relative capital intensity difference across sectors, aggregate instability can occur if the consumption tax rate is not too low. Moreover, we show through a numerical exercise based on empirically plausible tax rates that endogenous business-cycle fluctuations may be a source of instability for all OECD countries, including the US.

Keywords: consumption taxes; balanced-budget rule; infinite-horizon two-sector model; aggregate instability; indeterminacy; expectations-driven fluctuations (search for similar items in EconPapers)
Date: 2012-09
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00796685
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Related works:
Working Paper: Destabilizing balanced-budget consumption taxes in multi-sector economies (2023)
Journal Article: Destabilizing balanced-budget consumption taxes in multi-sector economies (2013)
Working Paper: Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies (2012)
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