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Tariff and Equilibrium Indeterminacy

  • Zhang, Yan
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    We examine the role of tariffs levied on the imported production factor in a one-sector small open economy real business cycle model. We show that under perfect competition and constant returns-to-scale, the model may exhibit local indeterminacy and sunspots as tariff rates are endogenously determined by a balanced-budget rule with a constant level of government expenditures. Conversely, the economy in which the government finances endogenous public spending and transfers with fixed tariff rates is immune to indeterminacy.

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    File URL: http://mpra.ub.uni-muenchen.de/11370/1/MPRA_paper_11370.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11370.

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    Date of creation: Nov 2008
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    Handle: RePEc:pra:mprapa:11370
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    Web page: http://mpra.ub.uni-muenchen.de

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    1. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Bond, Eric W. & Wang, Ping & Yip, Chong K., 1996. "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory, Elsevier, vol. 68(1), pages 149-173, January.
    7. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(I)," MPRA Paper 8338, University Library of Munich, Germany.
    8. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany.
    9. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(II)," MPRA Paper 10043, University Library of Munich, Germany.
    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.
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