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Tariff and Equilibrium Indeterminacy--(I)

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Zhang, Yan

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Abstract

Schmitt-Grohe and Uribe (1997, henceforth SGU) prove that in a standard neoclassical growth model the fiscal increasing returns induced by the endogenous factor income tax rate (assuming that the government expenditure is exogenous) has a close correspondence with the production increasing returns in Benhabib and Farmer (1994) model. Wen and Aguiar-Conraria (2005, 2006, henceforth WAC ) extend the Benhabib-Farmer model to open economy by introducing imported foreign production factors. We prove that in a modified WAC model without increasing returns, using the tariff revenue from the imported production factor to finance the exogenous government expenditure, we can also have indeterminacy. From this perspective, factor income tax and tariff share similar channels to generate indeterminacy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8338.

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Date of creation: Apr 2008
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Handle: RePEc:pra:mprapa:8338

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Related research
Keywords: Indeterminacy; Endogenous Tariff Rate; Small Open Economy; Exogenous Government Expenditure;

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Find related papers by JEL classification:
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June. [Downloadable!] (restricted)
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  2. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier. [Downloadable!] (restricted)
  3. Charles Ka-Yui Leung, 1998. "Income Tax, Property Tax and Tariff in a Small Open Economy," Departmental Working Papers _104, Chinese University of Hong Kong, Department of Economics.
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  4. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(II)," MPRA Paper 10043, University Library of Munich, Germany. [Downloadable!]
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  5. Weder, Mark, 2001. "Indeterminacy in a Small Open Economy Ramsey Growth Model," Journal of Economic Theory, Elsevier, vol. 98(2), pages 339-356, June. [Downloadable!] (restricted)
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  6. Finn, Mary G, 2000. "Perfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 400-416, August.
  7. Aguiar-Conraria, Lu?s & Wen, Yi, 2008. "A Note On Oil Dependence And Economic Instability," Macroeconomic Dynamics, Cambridge University Press, vol. 12(05), pages 717-723, November. [Downloadable!]
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  8. Julio J. Rotemberg & Michael Woodford, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," NBER Working Papers 5634, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Michael Loewy, 2004. "Optimal tariffs, optimal taxes and economic development," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 13(4), pages 461-486, December. [Downloadable!] (restricted)
  10. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper 9324, Federal Reserve Bank of Dallas. [Downloadable!]
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  11. Meng, Qinglai & Velasco, Andres, 2004. "Market imperfections and the instability of open economies," Journal of International Economics, Elsevier, vol. 64(2), pages 503-519, December. [Downloadable!] (restricted)
  12. David N DeJong & Marla Ripoll, 2006. "Tariffs and Growth: An Empirical Exploration of Contingent Relationships," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 625-640, October. [Downloadable!] (restricted)
  13. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany. [Downloadable!]
  14. Qinglai Meng & Andrés Velasco, 2003. "Indeterminacy in a small open economy with endogenous labor supply," Economic Theory, Springer, vol. 22(3), pages 661-669, October. [Downloadable!] (restricted)
  15. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy," MPRA Paper 11370, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany. [Downloadable!]
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