Indeterminacy in a model with sector-specific externalities

Harrison, Sharon G.

doi:10.1016/s0165-1889(99)00040-8

Cited by 73 publications

(96 citation statements)

References 18 publications

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“…Remark 1: Harrison [7] considers a two-sector model with capital and labor sector-specific externalities. Contrary to our formulation, and following Benhabib and Farmer [2], the technologies at the private level are assumed to be identical across sectors and with constant returns to scale.…”

Section: Resultsmentioning

confidence: 99%

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Capital externalities in two-sector models†

Venditti¹

2007

Journal of Difference Equations and Applications

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Abstract:We consider a two-sector economy with positive capital externalities and constant social returns. We first show that local indeterminacy does not require external effects from labor but is fundamentaly based on externalities derived from capital in the investment good sector. Second, we show that the external effects in the investment good sector has to be characterized by a low enough amount of capital stock from the consumption good sector. In other words, the existence of multiple equilibria is ruled out if the externalities are too intersectoral.

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Section: Resultsmentioning

confidence: 99%

“…Remark 2: Harrison and Weder [8] consider the same two-sector model as Harrison [7] but introduce also aggregate externalities. They find that such a modification does not reduce the overall amount of external effects needed for local indeterminacy.…”

Section: Resultsmentioning

confidence: 99%

Capital externalities in two-sector models†

Venditti¹

2007

Journal of Difference Equations and Applications

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“…Equation (11) shows that the firm utilizes capital to the point where the marginal benefit of more output is equal to the marginal cost of faster depreciation. Equation (12) shows that the firm undertakes maintenance activity to the point where one unit of goods devoted to maintenance is equal to the marginal reduction in the firm's depreciation expense.…”

Section: Firmsmentioning

confidence: 99%

“…This result is not surprising given that maintenance expenditures are a constant fraction of total output in equilibrium. 9 9 In two-sector RBC models with constant capital utilization (Benhabib and Farmer, 1996;Perli, 1998;Weder, 2000;Harrison, 2001), the required degree of increasing returns for local indeterminacy is also around 1.08. However, in contrast to the one-sector framework used here, these two-sector models yield the result that consumption moves countercyclically when economic fluctuations are driven solely by sunspot shocks.…”

Section: Local Indeterminacymentioning

confidence: 99%

“…In the original one-sector models of Benhabib and and Farmer and Guo (1994), local indeterminacy requires an implausibly high degree of increasing returns-to-scale in production (Burnside, 1996;Basu and Fernald, 1997). Subsequent research has shown that RBC models with multiple sectors of production (Benhabib and Farmer, 1996;Perli, 1998;Weder, 2000;Harrison, 2001) or endogenous capital utilization (Wen, 1998) can generate local indeterminacy with much lower degrees of increasing returns. 1 Interestingly, however, a combination model that incorporates both multiple production sectors and endogenous capital utilization may give rise to equilibrium indeterminacy only within an extremely narrow range of increasing returns.…”

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confidence: 99%

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Maintenance expenditures and indeterminacy under increasing returns to scale

Guo

Lansing

2007

Int J of Economic Theory

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This paper develops a one-sector real business cycle model in which competitive firms allocate resources for the production of goods, investment in new capital, and maintenance of existing capital. Firms also choose the utilization rate of existing capital. A higher utilization rate leads to faster capital depreciation, while an increase in maintenance activity has the opposite effect. We show that as the equilibrium ratio of maintenance expenditures to GDP rises, the required degree of increasing returns for local indeterminacy declines over a wide range of parameter combinations. When the model is calibrated to match empirical evidence on the relative size of maintenance and repair activity, we find that local indeterminacy (and belief-driven fluctuations) can occur with a mild and empirically-plausible degree of increasing returns-around 1.08.

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Tax policy implications for a two‐engine growing economy

Wang

Liu

Chang

2020

Southern Economic Journal

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In an endogenous growth model with two engines of R&D and capital, we investigate the environment of “inclusive growth” for tax reallocations (tax increases or tax credits) to gain broader benefits in terms of promoting the overall GDP growth without an increase in income inequality. Our results show that a tax increase in the capital‐good sector can result in inclusive growth, boosting overall growth and reducing income inequality, provided that the status quo tax rate is not too high. Surprisingly, tax credits are not able to achieve such inclusive growth. While the GDP growth rises, a tax credit in the R&D sector not only increases income inequality but also decreases the aggregate employment, if the labor mobility cost between the final‐good and R&D/capital‐good sectors is relatively low. This provides a caution to policymakers given the fact that research tax credits have served as a common incentive to strengthen the R&D environment.

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Indeterminacy in a model with sector-specific externalities

Cited by 73 publications

References 18 publications

Capital externalities in two-sector models†

Capital externalities in two-sector models†

Maintenance expenditures and indeterminacy under increasing returns to scale

Tax policy implications for a two‐engine growing economy

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