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This thesis aims to analyze aggregate instability due to volatile expectations in a simple
OLG model with money. We assume there are two types of goods, necessity and luxury
goods, from which agents take utility, with the particularity of having a consumption
externality affecting the consumption of the latter. We also assume government to follow
a balanced budget rule with public spendings financed exclusively through consumption
taxation. Tax rates for each type of good may be different and may to react to the
cycle. We verify that the distinction between necessity and luxury goods is not relevant
for the emergence of indeterminacy, if there is no government intervention and if the
externality has no influence. Then we show that the fiscal policies considered may create
local indeterminacy, in the absence of externalities, if tax rates are strongly pro-cyclical
or counter-cyclical. We also show that externalities, per se, may create indeterminacy.
However, consumption taxation can, in fact, be a stabilizing instrument, by eliminating
local indeterminacy, if one of the tax rates is set pro-cyclically (counter-cyclically) for a
positive (negative) externality degree.