Can consumption taxes stabilize the economy in the presence of consumption externalities?

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Resumo

We discuss the stabilization role of consumption taxes under a balanced-budget rule in the presence of consumption externalities of the “keeping up with the Joneses” type. We consider a finance constrained economy and depart from a situation where sufficiently strong externalities make the steady state indeterminate, if government intervention is absent. Sufficiently procyclical consumption tax rates are able to ensure local saddle path stability. However, this procyclicality leads to the appearance of another steady state with lower levels of output which is a source or indeterminate. Therefore, government intervention with stabilization purposes may not be successful.
Idioma originalEnglish
Título da publicação do anfitriãoSunspots and Non-Linear Dynamics
EditoraSpringer
Páginas259-278
Número de páginas20
ISBN (eletrónico)9783319440767
ISBN (impresso)9783319440743, 9783319829760
DOIs
Estado da publicaçãoPublished - 2017

Série de publicação

NomeStudies in Economic Theory
EditoraSpringer
Volume31

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