Stability of a Small Open Economy under Nonlinear Income Taxation

Chen, Been-Lon and Hu, Yunfang and Mino, Kazuo (2019): Stability of a Small Open Economy under Nonlinear Income Taxation.

Abstract

The stabilization effect of nonlinear income taxation is addressed in the standard model of small open economy. It is shown that if income taxation schedule is progressive, the small open economy tends hold saddle-point stability. On the other hand, if taxation on the interest income is regressive, then the small open economy may exhibit sunspot-driven fluctuations or it displays a diverging behavior.

• Item Type: MPRA Paper
• Language: English
• Keywords: Taxation Rule, Stability, Equilibrium Indeterminacy, Small Open Economy
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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