Tariff and Equilibrium Indeterminacy
We study the effect of tariffs in a one-sector small open economy that imports oil. We find that (1) the model may exhibit local indeterminacy and sunspots when tariff rates are endogenously determined by a balanced-budget rule with a constant level of government expenditures (or lump-sum tansfers); and (2) indeterminacy disappears if the government finances endogenous public spending and transfers with fixed tariff rates. Under the first type of balanced budget formulation, we provide numerical (calibration) examples to illustate that the government shouldn't distort the oil price paid by firms with tariffs in order to avoid aggregate instability. Under the second type of balanced budget formulation, we prove that the economy exhibits equilibrium uniqueness, regardless of the existence of lump-sum transfers.
|Date of creation:||01 Feb 2009|
|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.:
- Aguiar-Conraria, Luís & Wen, Yi, 2008.
"A Note On Oil Dependence And Economic Instability,"
Cambridge University Press, vol. 12(05), pages 717-723, November.
- Luís Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis.
- 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 541-554, August.
- 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.
- Weder, Mark, 2001. "Indeterminacy in a Small Open Economy Ramsey Growth Model," Journal of Economic Theory, Elsevier, vol. 98(2), pages 339-356, June.
- Weder, Mark, 2000. "Indeterminacy in a Small Open Economy Ramsey Growth Model," CEPR Discussion Papers 2585, C.E.P.R. Discussion Papers.
- 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.
- 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.
- 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 550-577, November.
- 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.
- 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.
- 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.
- 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.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:13099. 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 references are entirely missing, you can add them using this form.