Tariff Policy, Increasing Returns and Endogenous Fluctuations
We study the effects of government tariff policy in a one-sector small open economy RBC model with a productive externality that generates social increasing returns to scale. Various forms of endogenous fluctuations, including stable 2-, 4-, 8-, and 15-cycles, quasiperiodic orbits and chaos can be identified in this model if we introduce a constant tariff or subsidy (applied to the imported production factor) into the laissez-faire economy that exhibits local indeterminacy. In a somewhat different model, Guo and Lansing (2002) show that a constant capital tax or subsidy can give rise to similar dynamics in a closed-economy one sector model with a productive externality. From this perspective, factor income taxes and tariffs are equivalent to generate endogenous fluctuations in those economies with social increasing returns to scale. We further show that in our model, the local determinacy can coexist with the global indeterminacy for a plausible range of tariff rates, which brings our attention to the use of local steady state analysis to make conclusions about the global dynamics of the nonlinear models.
|Date of creation:||17 Aug 2008|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Hansen, Gary D., 1985.
"Indivisible labor and the business cycle,"
Journal of Monetary Economics,
Elsevier, vol. 16(3), pages 309-327, November.
- Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
- Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
- Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers 91-59, C.V. Starr Center for Applied Economics, New York University.
- Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
- Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
- Cazzavillan, Guido, 1996. "Public Spending, Endogenous Growth, and Endogenous Fluctuations," Journal of Economic Theory, Elsevier, vol. 71(2), pages 394-415, November.
- Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
- Luís Aguiar-Conraria & Yi Wen, 2007. "Understanding the Large Negative Impact of Oil Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 925-944, 06.
- Luis Aguiar-Conraria & Yi Wen, 2006. "Understanding the large negative impact of oil shocks," Working Papers 2005-042, Federal Reserve Bank of St. Louis.
- Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
- Jang-Ting Guo & Kevin Lansing, 1999. "Fiscal policy, increasing returns, and endogenous fluctuations," Working Papers in Applied Economic Theory 99-08, Federal Reserve Bank of San Francisco.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10061. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.