Equilibrium dynamics in a two-sector model with taxes

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18 Scopus citations

Abstract

In this paper we are concerned with the equilibrium dynamics of a two-sector model of endogenous growth with distortionary taxes. We show that for certain parameters values and tax schemes every equilibrium orbit-except the steady state solution-is non-interior; i.e., there are times in which one of the sectors is inactive. This analysis confirms that in multisector models the set of easily checkable, universal conditions that can guarantee the interiority of equilibrium solutions is rather limited. Journal of Economic Literature Classification Numbers: D90, E22.

Original languageEnglish (US)
Pages (from-to)99-119
Number of pages21
JournalJournal of Economic Theory
Volume105
Issue number1
DOIs
StatePublished - Jan 1 2002
Externally publishedYes

Keywords

  • Competitive equilibrium
  • Distortionary taxes
  • Dynamic instability
  • Non-interior equilibrium orbit

ASJC Scopus subject areas

  • Economics and Econometrics

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