The Conditions for Indeterminacy in Two Types of Balanced Budget Rules - Reconsidered

Fujio Takata ()
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Fujio Takata: Graduate School of Economics, Kobe University

No 1806, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: When governments levy taxes on labor income on the basis of a balanced budget rule, and if a countercyclical income tax is adopted, two steady states in an economy exist, of which one can cause indeterminacy paths and a saddle path. Conversely, without a countercyclical income tax, indeterminacy disappears, as does one steady state, even if a balanced budget rule is adopted. This holds regardless of labor supply adjustment.

Pages: 12 pages
Date: 2018-02
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