Progressive taxation and macroeconomic stability in two-sector models with social constant returns

Been Lon Chen, Mei Hsu, Yu Shan Hsu

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

It has been shown that, in the two-sector Benhabib–Farmer–Guo model with technologies of social increasing returns that exhibits indeterminacy, progressive income taxes de-stabilize the economy. This paper revisits the robustness of the tax implication in the two-sector Benhabib–Nishimura model with technologies of social constant returns that exhibits indeterminacy. We show that a progressive income tax stabilizes the economy against sunspot fluctuations, and thus the tax implication based on the two-sector Benhabib–Farmer–Guo model is not robust.

Original languageEnglish
Pages (from-to)51-68
Number of pages18
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume125
Issue number1
DOIs
Publication statusPublished - 2018 Sep 1

Keywords

  • Indeterminacy
  • No-income-effect utility
  • Progressive income taxes
  • Social constant returns
  • Two-sector model

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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