Stability of a Small Open Economy under Nonlinear Income Taxation

Been-Lon Chen, Yunfang Hu and Kazuo Mino

MPRA Paper from University Library of Munich, Germany

Abstract: The stabilization effect of nonlinear income taxation is addressed in the standard model of small open economy. It is shown that if income taxation schedule is progressive, the small open economy tends hold saddle-point stability. On the other hand, if taxation on the interest income is regressive, then the small open economy may exhibit sunspot-driven fluctuations or it displays a diverging behavior.

Keywords: Taxation Rule; Stability; Equilibrium Indeterminacy; Small Open Economy (search for similar items in EconPapers)
JEL-codes: E62 F41 (search for similar items in EconPapers)
Date: 2019-05-15
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:98101

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