In this paper, we shed light on the relationship between taxation and steady states by analyzing the OGL model of Chakraborty [2004]. We show that there is (i) a non-monotonic relationship between taxation and growth; (ii) a threshold value of taxation in such a way that there is no effect on the steady state; and finally, (iii) the effect on the two nontrivial steady states is not equal: an increase in tax rate will initially reduce (increase) the unstable (stable) steady state and will then increase (reduce) it.
Naimzada, A., Ricchiuti, G. (2006). The Non-monotonic Relationship between Taxation and Long Term Equilibrium in a Model of Endogenous Lifetime and Economic Growth [Working paper del dipartimento].
The Non-monotonic Relationship between Taxation and Long Term Equilibrium in a Model of Endogenous Lifetime and Economic Growth
NAIMZADA, AHMAD KABIR;
2006
Abstract
In this paper, we shed light on the relationship between taxation and steady states by analyzing the OGL model of Chakraborty [2004]. We show that there is (i) a non-monotonic relationship between taxation and growth; (ii) a threshold value of taxation in such a way that there is no effect on the steady state; and finally, (iii) the effect on the two nontrivial steady states is not equal: an increase in tax rate will initially reduce (increase) the unstable (stable) steady state and will then increase (reduce) it.
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