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

Bambi, Mauro and Venditti, Alain (2021) 'Time‐varying consumption tax, productive government spending, and aggregate instability.', International journal of economic theory., 17 (2). pp. 190-215.

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.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1111/ijet.12216
Publisher 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.
Date accepted:24 November 2018
Date deposited:24 April 2019
Date of first online publication:01 April 2019
Date first made open access:01 June 2021

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