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A Note On Tariff Policy, Increasing Returns, And Endogenous Fluctuations

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  • Chen, Yan
  • Zhang, Yan

Abstract

We show that the introduction of a constant tariff or subsidy levied on foreign energy can lead to a rich set of endogenous fluctuations around the unique steady state, including stable 2-, 4-, 8-, and 15-cycles, quasiperiodic orbits, and chaos. This is demonstrated in a standard neoclassical growth model with social increasing returns to scale. Numerical exercises could be viewed from a methodological perspective as illustrating that capital income taxes and tariffs are equivalent in generating endogenous fluctuations because Guo and Lansing [Guo, J.T. and K.J. Lansing (2002) Fiscal policy, increasing returns and endogenous fluctuations. Macroeconomic Dynamics 6, 633–664] show that a constant capital tax or subsidy has the same effect on the model dynamics in a one-sector closed economy.

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  • Chen, Yan & Zhang, Yan, 2011. "A Note On Tariff Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 15(02), pages 279-291, April.
  • Handle: RePEc:cup:macdyn:v:15:y:2011:i:02:p:279-291_09
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