Speaker: Mauro Bambi, University of York
Title: Procyclical endogenous taxation and aggregate instability".
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.