Balanced-Budget Rule, distortionary taxes and Aggregate Instability: A Comment - Archive ouverte HAL
Pré-Publication, Document De Travail Année : 2008

Balanced-Budget Rule, distortionary taxes and Aggregate Instability: A Comment

Aurélien Saïdi

Résumé

It has been shown that under perfect competition and constant returns-to-scale, a one-sector growth model may exhibit local indeterminacy when income tax rates are endogenously determined by a balanced-budget rule while government expendi- tures are fixed. This paper shows that the associated aggregate instability does not ensue from the local indeterminacy of a specific stationary equilibrium but from the multiplicity of the stationary equilibria and persists under local determinacy of all of them. We provide a global analysis of the Schmitt-Grohe and Uribe model [1997] and study specific cases that were not investigated in the original paper, when aggregate instability is inherited from the coexistence of two saddle-path equilibria on one hand and from the connection of the two steady states on the other hand.
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Dates et versions

hal-04140707 , version 1 (26-06-2023)

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  • HAL Id : hal-04140707 , version 1

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Aurélien Saïdi. Balanced-Budget Rule, distortionary taxes and Aggregate Instability: A Comment. 2008. ⟨hal-04140707⟩
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