The probability of Endogenous Fluctuations and Fiscal Policy

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Using a two-sector real business cycle model, I examined how labor and capital income tax rates influence the possibility of endogenous fluctuations. The obtained result is that unlike labor income taxes, the existence of capital income taxes enhances the probability of endogenous fluctuations.Based on two-period OLG model, I also investigated the theoretical relationship between the degree of credit market imperfection and the appearance of poverty traps. In this growth model, there coexist high-, middle-and low-steady states. I analytically proved that the economy is inevitable trapped in the poverty traps, as financial market are more imperfect.