Progressive Taxation and Macroeconomic Stability in Two‐sector Models with Social Constant Returns

Been-Lon Chen, Mei Hsu () and Yu-Shan Hsu ()
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Mei Hsu: College of Management, National Taiwan Normal University, http://en.ntnu.edu.tw/p-Management.php
Yu-Shan Hsu: Department of Economics, National Chung Cheng University

No 18-A003, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: It has been shown that, in the two‐sector Benhabib‐Farmer‐Guo model with technologies of social increasing returns that exhibits indeterminacy, progressive income taxes de‐stabilize the economy. This paper revisits the robustness of the tax implication in the two‐sector Benhabib‐Nishimura model with technologies of social constant returns that exhibits indeterminacy. We show that a progressive income tax stabilizes the economy against sunspot fluctuations, and thus the tax implication based on the two‐sector Benhabib‐Farmer‐Guo model is not robust.

Keywords: : two‐sector model; progressive income taxes; indeterminacy; no‐income‐effect utility; social constant returns (search for similar items in EconPapers)
JEL-codes: E32 O41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-01
New Economics Papers: this item is included in nep-mac
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Journal Article: Progressive taxation and macroeconomic stability in two-sector models with social constant returns (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:sin:wpaper:18-a003

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