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This paper studies an infinite‐horizon two‐sector growth model with sector‐specific externalities and preferences that are non‐separable between consumption and leisure. We find two main results. First, a larger income effect on the labor supply increases the possibility of macroeconomic instability. Second, a larger elasticity of the labor supply may increase or decrease the possibility of aggregate instability, depending on the intensity of the income effect.

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International Journal of Economic Theory, 2020, vol. 16, num. 2, p. 222-237

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(c) The International Association for Economic Theory, 2020

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Articles publicats en revistes (Economia)