Time‐varying consumption tax, productive government spending, and aggregate instability

Bambi, Mauro; Venditti, Alain

doi:10.1111/ijet.12216

Time‐varying consumption tax, productive government spending, and aggregate instability

Bambi, Mauro; Venditti, Alain

Authors

Dr Mauro Bambi mauro.bambi@durham.ac.uk
Associate Professor

Alain Venditti

Abstract

In this paper we investigate if government balanced‐budget rules together with endogenous taxation may lead to aggregate instability in an endogenous growth framework. After highlighting the differences with the exogenous growth framework, we prove that under counter‐cyclical consumption taxes, while there exists a unique balanced growth path, sunspot equilibria based on self‐fulfilling expectations occur through a form of global indeterminacy. In addition, we argue that this result is empirically plausible for a large set of OECD countries and that it may also emerge with endogenous income taxes.

Citation

Bambi, M., & Venditti, A. (2021). Time‐varying consumption tax, productive government spending, and aggregate instability. International Journal of Economic Theory, 17(2), 190-215. https://doi.org/10.1111/ijet.12216

Journal Article Type	Article
Acceptance Date	Nov 24, 2018
Online Publication Date	Apr 1, 2019
Publication Date	May 14, 2021
Deposit Date	Apr 24, 2019
Publicly Available Date	Apr 24, 2019
Journal	International Journal of Economic Theory
Print ISSN	1742-7355
Electronic ISSN	1742-7363
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	17
Issue	2
Pages	190-215
DOI	https://doi.org/10.1111/ijet.12216
Public URL	https://durham-repository.worktribe.com/output/1332383

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Copyright Statement
This is the accepted version of the following article: Bambi, Mauro & Venditti, Alain (2021). Time‐varying consumption tax, productive government spending, and aggregate instability. International Journal of Economic Theory 17(2): 190-215., which has been published in final form at https://doi.org/10.1111/ijet.12216. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.