Balanced‐budget rule,distortionary taxes and aggregate stability

It has been established under perfect competition and constant returns‐to‐scale that a one‐sector growth model may exhibit multiple stationary equilibria and local indeterminacy when income tax rates are endogenously determined by a balanced‐budget rule while government expenditures are fixed. The present paper shows that determinacy of the equilibrium trajectory is, however, generically preserved for a non‐empty range of initial values of the capital stock.