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

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    1. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany.
    2. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics.
    3. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(II)," MPRA Paper 10043, University Library of Munich, Germany.
    4. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
    5. Weder, Mark, 2000. "Indeterminacy in a Small Open Economy Ramsey Growth Model," CEPR Discussion Papers 2585, C.E.P.R. Discussion Papers.
    6. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
    7. 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.
    8. Zhang, Yan, 2009. "Tariff and Equilibrium Indeterminacy," MPRA Paper 13099, University Library of Munich, Germany.
    9. 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.
    10. Mourmouras, Alex, 1991. "Infant governments and the fiscal role of tariffs, inflation, and reserve requirements : A welfare analysis," Journal of International Economics, Elsevier, vol. 31(3-4), pages 271-290, November.
    11. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-77, November.
    12. 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.
    13. 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.
    14. Leung, Charles Ka Yui, 1999. "Income Tax, Property Tax, and Tariff in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 7(3), pages 541-54, August.
    15. Michael Loewy, 2001. "Optimal tariffs, optimal taxes and economic development," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(4), pages 461-486.
    16. 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.
    17. David M. Newbery, 2005. "Why Tax Energy? Towards a More Rational Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-40.
    18. Luís Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis.
    19. 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, November.
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    Cited by:
    1. Zhang, Yan, 2009. "Tariff and Equilibrium Indeterminacy," MPRA Paper 13099, University Library of Munich, Germany.
    2. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany.

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