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Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation

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  • Aleksandar Vasilev

Abstract

We show that in an endogenous growth model with human accumulation calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the artificial economy exhibits equilibrium indeterminacy. These results are in line with the recent findings in Chen and Guo (2015) in the context of an AK endogenous growth model. Also, the findings are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Progressive taxation in our setup leads to equilibrium indeterminacy. This indeterminacy result could explain, at least partially, why the economic performance under the progressive taxation regime in Bulgaria was not impressive.

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  • Aleksandar Vasilev, 2016. "Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 59(2), pages 1-15.
    • Handle: RePEc:eei:journl:v:59:y:2016:i:2:p:1-15
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    10. Shu-Hua Chen & Jang-Ting Guo, 2019. "Progressive taxation as an automatic destabilizer under endogenous growth," Journal of Economics, Springer, vol. 127(1), pages 47-71, June.
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    Cited by:

    1. Aleksandar Vasilev, 2021. "Indeterminacy with preferences featuring multiplicative habits in consumption," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 64(3), pages 1-16.
    2. Aleksandar Vasilev, 2021. "Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 64(1), pages 23-37.
    3. Vasilev, Aleksandar, 2022. "A Progressive Consumption Tax: An Important Instrument for Stabilizing Business Cycles, or Just an Exotic Idea?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 63(10-12), pages 576-588.
    4. Aleksandar Vasilev, 2021. "Progressive taxation and (in)stability in an exogenous growth model with Epstein-Zin recursive preferences," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 64(1), pages 51-68.
    5. Vasilev, Aleksandar, 2020. "Indeterminacy with preferences featuring multiplicative habits in consumption: lessons from Bulgaria (1999-2016)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    6. Vasilev, Aleksandar, 2021. "The role of inventories for the propagation of aggregate fluctuations: Lessons for Bulgaria (1999-2019)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    7. Aleksandar Vasilev, 2020. "Indeterminacy and Multiplicity of Equilibria in a Two-sector Economy with a Public-sector Production," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 63(1), pages 18-43.
    8. Vasilev, Aleksandar, 2020. "Does the form of the Aggregate Production Function Matter for Modelling Business Cycle Fluctuations? Lessons for Bulgaria (1999-2018)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 18, pages 81-86.
    9. Aleksandar Vasilev, 2022. "Is Military Spending Quantitatively Important for Business Cycle Fluctuations?," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 65(1), pages 28-51.
    10. Aleksandar Vasilev, 2017. "Progressive taxation and (in)stability in an exogenous growth model with an informal sector," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 60(2), pages 1-13.
    11. Vasilev, Aleksandar, 2021. "A Real-Business-Cycle model with robots: Lessons for Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 7(2), pages 7-15.
    12. Aleksandar Vasilev, 2022. "How important are shocks to the elasticity of aggregate labor supply for business cycle fluctuations?," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 65(2), pages 48-67.
    13. Vasilev, Aleksandar, 2022. "How important are shocks to the elasticity of aggregate labor supply for business cycle fluctuations? Lessons from Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 65(2), pages 48-67.
    14. Vasilev, Aleksandar, 2019. "Taxation and welfare: measuring the effect of Bulgaria’s 2007-08 corporate-personal income tax reforms," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    15. Vasilev, Aleksandar, 2020. "How quantitatively important are the shocks to the time endowment for business cycle fluctuations? Lessons for Bulgaria (1999-2018)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.

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    More about this item

    Keywords

    Progressive Income Taxation; Endogenous growth; Human capital; Equilibrium (In)determinacy.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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