Non-Separable Preferences do not Rule Out Aggregate Instability under Balanced-Budget Rules: A Note - HAL-SHS - Sciences de l'Homme et de la Société
Pré-Publication, Document De Travail Année : 2014

Non-Separable Preferences do not Rule Out Aggregate Instability under Balanced-Budget Rules: A Note

Résumé

We investigate the role of non-separable preferences on the occurrence of macroeconomic instability under a balanced-budget rule where government spending is financed by a tax on labor income. Considering a one-sector neoclassical growth model with a large class of non-separable utility functions, we find that expectations-driven fluctuations easily occur when consumption and labor are Edgeworth substitutes or weak Edgeworth complements. Under these properties, an intermediate range of tax rates and a sufficiently low elasticity of intertemporal substitution in consumption lead to instability.
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Dates et versions

halshs-01933532 , version 1 (23-11-2018)

Identifiants

  • HAL Id : halshs-01933532 , version 1

Citer

Nicolas Abad, Thomas Seegmuller, Alain Venditti. Non-Separable Preferences do not Rule Out Aggregate Instability under Balanced-Budget Rules: A Note. 2014. ⟨halshs-01933532⟩
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