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| Author: | Giannitsarou, C. |
| Title: | Balanced budget rules and aggregate instability: the role of consumption taxes |
| Journal: | Economic Journal
2007 : OCT, VOL. 117:523, p. 1423-1435 |
| Index terms: | business cycles fiscal policy budgeting consumption taxation models |
| Language: | eng |
| Abstract: | This study shows that when the government finances its expenditures through an endogenous consumption tax, a steady state is always saddle-path stable. Consequently, combining income taxes with consumption taxes makes the ranges of indeterminacy shrink, thus reducing the possibility of aggregate instability. From a policy perspective, the results provide an additional argument in favour of consumption taxes in place of capital taxes. |
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