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

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.
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https://hal-amu.archives-ouvertes.fr/hal-02478346
Contributor : Elisabeth Lhuillier <>
Submitted on : Thursday, February 13, 2020 - 6:45:37 PM
Last modification on : Friday, July 17, 2020 - 8:25:35 AM

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Mauro Bambi, Alain Venditti. Time‐varying consumption tax, productive government spending, and aggregate instability. International Journal of Economic Theory, Wiley, In press, ⟨10.1111/ijet.12216⟩. ⟨hal-02478346⟩

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