Two Movement Patterns under the Balanced Budget Rule|Further Results

When governments levy taxes on labor income on the basis of a balanced budget rule, two steady states in an economy exist, which can cause two movement patterns, namely, indeterminacy paths and a saddle path. Many economists deal with this issue based on indivisiblelabor. On an general assumption of increasing marginal disutility of labor, that is, divisible labor, however, we demonstrate that for indeterminacy, an upper limitation concerning the share of capital in output is needed.