- Main
Indeterminacy, Progressive Taxation and Sector‐Specific Externalities
Published Web Location
https://doi.org/10.1111/1468-0106.12106Abstract
This paper quantitatively examines the empirical plausibility of equilibrium indeterminacy and sunspot-driven cyclical fluctuations in a real business cycle model with two distinct production sectors that yield consumption and investment goods, together with separable or non-separable preferences. When calibrated to match the observed progressivity of the U.S. federal individual income tax schedule, each version of our model economy exhibits an indeterminate steady state under empirically realistic combinations of the household's labor supply elasticity and the degree of productive externalities in the investment goods sector. Therefore, macroeconomic instability due to agents' self-fulfilling expectations may in fact be a prevalent feature of the U.S.
Many UC-authored scholarly publications are freely available on this site because of the UC's open access policies. Let us know how this access is important for you.
Main Content
Enter the password to open this PDF file:
-
-
-
-
-
-
-
-
-
-
-
-
-
-