Guo, Jang-Ting; Harrison, Sharon G. - In: Review of Economic Dynamics 4 (2001) 1, pp. 75-89
We show that in a two-sector real business cycle model wtih sufficiently strong investment externalities, a regressive tax policy can stabilize the economy against fluctuations driven by agents' animal spirits. By contrast, this economy with a flat or progressive tax scheme (such as that in the...