Econometrica: Mar, 1998, Volume 66, Issue 2

On the Dual Stability of a Von Neumann Facet and the Inefficacy of Temporary Fiscal Policy

https://doi.org/0012-9682(199803)66:2<427:OTDSOA>2.0.CO;2-W
p. 427-451

Makoto Yano

This study establishes two main results in a dynamic general equilibrium model. The first is to demonstrate the dual Liapounov stability of a von Neumann facet without the restrictive assumptions on the structure of underlying technologies that are commonly adopted in the optimal growth literature. The second result is to demonstrate that a temporary change in fiscal policy has almost no effect on present and future consumption. While such inefficacy of temporary fiscal policy has been discussed in the context of the permanent income hypothesis, in this study, it is proved in the dynamic general equilibrium framework under a set of basic assumptions of general equilibrium theory.