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Title Endogenous Growth and Equilibrium Cycles under Altruistic and Envious Preferences
Author Hyun Park (Kyung Hee University)
Volume 35 Number 2
Pages 307-344 
Keywords Equilibrium Cycles, Consumption Tax, Habits, Indeterminacy, Public Capital, Stabilizer
Abstract This study examines how habit persistence in preferences affects short- and long-run economic growth in a dynamic competitive economy and addresses the possibility of equilibrium cycles in the presence of habit persistence in preferences. The study shows acontinuum of transitional competitive equilibrium paths, each of which converges to a unique balanced growth path when external habits influence a households preferences and when a firms productivities increase in public capital services financed by consumption taxes. The self-fulfilling sunspot equilibrium path exhibits equilibrium cycles underaltruistic or envious preferences in a growing competitive economy with exogenous fiscal policies. The study also demonstrates that a distortionary fiscal policy, including consumption tax, acts as a stabilizer for sunspot-driven fluctuations among rational expectation agents, selects a unique transitional path around the unique balance growth path, and eradicates equilibrium cycles in the social optimum.
File KER-20190701-35-2-02.pdf
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