Endogenous income taxes in OLG economies: A clarification

Yan Chen and Yan Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: This paper introduces endogenous capital income tax rates as in Schmitt-Grohe and Uribe (1997), into the overlapping generations model with endogenous labor and consumption in both periods of life (e.g., Cazzavillan and Pintus, 2004). In contrast with the previous result that the existence of endogenous labor income taxes raises the possibility of local indeterminacy (Chen and Zhang 2009), it shows that increasing the size of capital income taxes can make shrink the range of values of the consumption--to--wage ratio associated with local indeterminacy, because of two conflicting effects on savings that operate through wage and interest rate.

Keywords: Indeterminacy; Endogenous capital income tax rate. (search for similar items in EconPapers)
JEL-codes: C62 E32 (search for similar items in EconPapers)
Date: 2009-08-16
New Economics Papers: this item is included in nep-acc, nep-dge, nep-mac and nep-pub
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Citations: View citations in EconPapers (2)

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