Abstract
We analyze a basic endogenous growth model with public debt and a state-dependent consumption tax rate. We show that the balanced budget rule guarantees that the long-run growth path of the economy is unique and saddle point stable unless the tax rate is strongly regressive. In case of a strongly regressive consumption tax rate over a certain range, multiple balanced growth paths and local indeterminacy can arise.
| Original language | English |
|---|---|
| Pages (from-to) | 2601-2609 |
| Number of pages | 9 |
| Journal | Economics Bulletin |
| Volume | 35 |
| Issue number | 4 |
| Publication status | Published - 2015 |
| Externally published | Yes |