Multiple equilibria and global indeterminacy in an endogenous growth model with congestible public goods

Abstract

This paper extends the findings in Chen and Lee (2007) to show that the use of congestible public goods can produce both local and global indeterminacy in a two-sector endogenous growth model with productive public services financed by income taxation. Basically, we observe the effects on growth rates by changing parameters, and compare the case of a single steady-state with the emergence of dual steady-states, identifying the feasible ways to avoid a possible low-growth poverty trap. The novelty of our analysis is to detect the presence of global indeterminacy by making use of the Bogdanov-Takens bifurcation theorem. Some examples are also provided to achieve concrete policy implications.

Sovereign debt, fiscal policy, and macroeconomic instability

“…b φ k = ( ) describes the stable manifold of the saddle, all equilibrium trajectories converge to the sink steady state, whereas when b φ k = ( ) 1 0 the equilibrium trajectory converges instead to the saddle steady state.41Global indeterminacy may also emerge under a balanced-buget rule in the presence of specific features of government spending. See, for example,Abad et al (2020) with incompressible public expenditures in a Ramsey model, andBella and Mattana (2019) with congestible public goods in a two-sector model. 42…”