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

Abstract : 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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https://halshs.archives-ouvertes.fr/halshs-01933532
Contributor : Charles Lai Tong <>
Submitted on : Friday, November 23, 2018 - 5:46:33 PM
Last modification on : Wednesday, August 5, 2020 - 3:17:16 AM

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WP 2018 - Nr 26.pdf
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  • HAL Id : halshs-01933532, version 1

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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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