Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/213560
Authors: 
Vasilev, Aleksandar
Year of Publication: 
2019
Series/Report no.: 
EERI Research Paper Series 05/2019
Abstract: 
We show that in an 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 findings 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: 
H22
J46
D51
D91
O41
Document Type: 
Working Paper

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