Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production

Vasilev, Aleksandar (2021) Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production. Journal of Economics and Econometrics, 64 (1). pp. 23-37. ISSN 2032-9652

Full content URL: https://ideas.repec.org/a/eei/journl/v64y2021i1p23...

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Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production
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Abstract

We show that in a exogenous growth model with non-market ("home") sector calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the economy exhibits equilibrium indeterminacy due to the presence of non-market production. These results are in line with the findings in Benhabib and Farmer (1994, 1996) and Farmer (1999). Also, the findings in this paper are in contrast to Guo and Lansing (1988)who argue that progressive taxation works as an automatic stabilizer. Under the flat tax regime (2008-16), the economy calibrated to Bulgarian data displays saddle-path stability. The decrease in the average effective tax rate addresses the indeterminacy
issue and eliminates the "stable focus" dynamics.

Keywords:Progressive taxation; Non-market Sector; Home Production; Equilibrium (In)determinacy
Subjects:L Social studies > L130 Macroeconomics
Divisions:Lincoln International Business School
ID Code:46888
Deposited On:15 Dec 2021 14:05

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