Working Paper Series no. 439: Strict Fiscal Rules and Macroeconomic Stability: The Case of Social VAT (in French)

Abstract

This paper studies the local dynamic properties of a simple general equilibrium model with Social VAT. Strict balanced budget rules often lead to real indeterminacy of aggregate equilibrium, leaving room for «sunspots» fluctuations. In a closed-economy setup, social VAT escapes this property and only reduces the aggregate labor supply elasticity. However, the quantitative effects are weak.

Patrick Fève, Julien Matheron and Jean-Guillaume Sahuc - Forthcoming in : « Revue Économique »
August 2013

Classification JEL : E32, E62

Keywords : Macroeconomic stability, Social VAT, Labor supply elasticity, Aggregate fluctuations