Synopsis

Abstract

To begin with, consider a Solow model of a closed economy where the government fixes the deficit ratio. Under these circumstances, generally, there will be one stable steady state. Now assume that the government instead fixes the tax rate. Then, as a rule, there will be no steady state. As an exception, however, there will be two steady states, one of them being stable, the other unstable. If the government fixes the deficit per head, then generally there will be two steady states, a stable one and unstable one. As an alternative, suppose that the government fixes the tax per head. Then, as a rule, there will be no steady state. But as an exception there will be two steady states, one of them being stable, the other unstable. And what is more, in the overlapping generations model principally the same results can be obtained as in the Solow model.