Endogenous income taxes in OLG economies: A clarification

Chen, Yan and Zhang, Yan (2009): Endogenous income taxes in OLG economies: A clarification.

Abstract

This paper introduces endogenous capital income tax rates as in Schmitt-Grohe and Uribe (1997), into the overlapping generations model with endogenous labor and consumption in both periods of life (e.g., Cazzavillan and Pintus, 2004). In contrast with the previous result that the existence of endogenous labor income taxes raises the possibility of local indeterminacy (Chen and Zhang 2009), it shows that increasing the size of capital income taxes can make shrink the range of values of the consumption--to--wage ratio associated with local indeterminacy, because of two conflicting effects on savings that operate through wage and interest rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Indeterminacy; Endogenous capital income tax rate.
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium

References

Cazzavillan, G., Pintus, P., 2004. Robustness of multiple equilibria in OLG economies. Review of Economic Dynamics 7, 456--475.

Cazzavillan, G., Pintus, P., 2006. Capital externalities in OLG economies. Journal of Economic Dynamics & Control 30, 1215--1231.

Chen, Y., Zhang, Y., 2009a. Endogenous income taxes in OLG economies. Mimeo.

Chen, Y., Zhang, Y., 2009b. Endogenous income taxes in OLG economies: A clarification. Mimeo.

Schmitt-Grohe, S., Uribe, M., 1997. Balanced-budget rule, distortionary taxes and aggregate instability. Journal of Political Economy 105, 976-1000.