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Income Tax and Endogenous Business Cycles
Author(s) -
Utaka Atsuo
Publication year - 2003
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1467-9779.00125
Subject(s) - economics , public good , overlapping generations model , microeconomics , production (economics) , income tax , chaotic , government (linguistics) , government budget , monetary economics , public finance , macroeconomics , public economics , linguistics , philosophy , management
This paper investigates the dynamic implication of balanced–budget rules. We introduce public goods to an overlapping generations model with production and assume that public goods in each period are financed by the labor income taxes. We show that in our model, if the cost of providing public goods is financed by lump–sum taxes, endogenous fluctuations would never occur. But in cases where the government adopts proportional taxes, periodic and chaotic equilibria can exist.