Indeterminacy with Progressive Taxation and Sector-Specific Externalities

Jang-Ting Guo and Sharon Harrison

No 201403, Working Papers from University of California at Riverside, Department of Economics

Abstract: This paper quantitatively examines the empirical plausibility of equilibrium indeterminacy and sunspot-driven cyclical fluctuations in a real business cycle model with two distinct production sectors that yield consumption and investment goods, together with separable or non-separable preferences. When calibrated to match the observed progressivity of the U.S. federal individual income tax schedule, each version of our model economy exhibits an indeterminate steady state under empirically realistic combinations of the household's labor supply elasticity and the degree of productive externalities in the investment goods sector. Therefore, macroeconomic instability due to agents' self-fulfilling expectations may in fact be a prevalent feature of the U.S.

Keywords: Indeterminacy; Progressive Taxation; Sector-Specific Externalities. (search for similar items in EconPapers)
JEL-codes: E30 E32 E62 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economics.ucr.edu/repec/ucr/wpaper/201403.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Indeterminacy with Progressive Taxation and Sector-Specific Externalities (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201403

Access Statistics for this paper

More papers in Working Papers from University of California at Riverside, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kelvin Mac ().