✦ LIBER ✦

Indeterminacy and fiscal policies in a growing economy

✍ Scribed by Hyun Park; Apostolis Philippopoulos

Publisher: Elsevier Science
Year: 2004
Tongue: English
Weight: 290 KB
Volume: 28
Category: Article
ISSN: 0165-1889
DOI: 10.1016/s0165-1889(03)00038-1

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✦ Synopsis

This paper studies the dynamic properties of a standard one-sector model of endogenous growth with inelastic labor supply, in which capital taxes are used to ÿnance public production and consumption services. The government is benevolent and chooses its tax policy by taking into account the decentralized competitive equilibrium. Within this second-best setup, we establish conditions for multiple balanced growth paths, in conjunction with indeterminacy of transitional dynamics. The mechanism for global and local indeterminacy is a simple combination of public production services (that provide production externalities to private ÿrms, and hence cause a wedge between private and social returns), public consumption services (that provide direct utility to households) and endogenously chosen distorting taxes.

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