1.Institute of Economics, Academia Sinica,Taipei,Taiwan;2.College of Management,National Taiwan Normal University,Taipei,Taiwan;3.Department of Economics,National Chung Cheng University,Min-Hsiung Chia-Yi,Taiwan
Abstract:
It has been shown that, in the two-sector Benhabib–Farmer–Guo model with technologies of social increasing returns that exhibits indeterminacy, progressive income taxes de-stabilize the economy. This paper revisits the robustness of the tax implication in the two-sector Benhabib–Nishimura model with technologies of social constant returns that exhibits indeterminacy. We show that a progressive income tax stabilizes the economy against sunspot fluctuations, and thus the tax implication based on the two-sector Benhabib–Farmer–Guo model is not robust.