Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/182578 
Year of Publication: 
2018
Publisher: 
ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
We show that in a exogenous growth model with Epstein-Zin (1989, 1991) recursive preferences calibrated to Bulgarian data under the progressive taxation regime (1993- 2007), the economy exhibits equilibrium indeterminacy. These results are in line with the fi ndings in Benhabib and Farmer (1994, 1996) and Farmer (1999). Also, the findings in this paper are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. In contrast, under the flat tax regime (2008-16), the same economy calibrated to Bulgarian data now displays saddle-path stability. The decrease in the average effective tax rate addresses the indeterminacy issue and eliminates the "sink" dynamics.
Subjects: 
Progressive taxation
Epstein-Zin preferences
Equilibrium (In)determinacy
Bulgaria
JEL: 
D51
D91
Document Type: 
Working Paper

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