We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
NONSEPARABLE PREFERENCES DO NOT RULE OUT AGGREGATE INSTABILITY UNDER BALANCED-BUDGET RULES: A NOTE.
- Authors
Abad, Nicolas; Seegmuller, Thomas; Venditti, Alain
- Abstract
We investigate the role of nonseparable preferences in the occurrence of macroeconomic instability under a balanced-budget rule where government spending is financed by a tax on labor income. Considering a one-sector neoclassical growth model with a large class of nonseparable utility functions, we find that expectations-driven fluctuations occur easily when consumption and labor are Edgeworth substitutes or weak Edgeworth complements. Under these assumptions, an intermediate range of tax rates and a sufficiently low elasticity of intertemporal substitution in consumption lead to instability.
- Subjects
BUDGET laws; MACROECONOMICS; ECONOMIC development; UTILITY functions; PUBLIC spending
- Publication
Macroeconomic Dynamics, 2017, Vol 21, Issue 1, p259
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100515000358