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Mauro Bambi

14 June 2016 at 2:00 PM - 3:00 PM

Room 305A, Campus on Viale Romania, 32

Speaker: Mauro Bambi, University of York

Title: Procyclical endogenous taxation and aggregate instability". 

  • Abstract:

The existing contributions on endogenous taxation and balanced budget rulessuggest that countercyclical taxes should be avoided because may lead to aggregateinstability (i.e. sunspot equilibria). In this paper we re-examine this issue in anendogenous growth model with productive government investment and we provethat an economy with procyclical taxes and a sufficiently large income effect canstill be characterised by i) global indeterminacy because two balanced growth pathsmay exist; ii) aggregate instability around the balanced growth path with the lowestgrowth rate. In addition, we show that this dynamics may emerge for reasonablevalues of the tax rates.