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Chaotic business cycles and fiscal policy: An IS-LM model with distributed tax collection lags

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  • Fanti, Luciano
  • Manfredi, Piero

Abstract

A continuous time economic IS-LM model with distributed tax collection lag is proposed. Phase transitions from stability to stable oscillations and finally to chaotic motion are shown to occur. The model thus offers an explanation of the multiperiodicity and irregularity in business cycles. The suggested implications in fiscal control policy could be of help in the current economic and political debate on the role of fiscal policy in the European countries.

Suggested Citation

  • Fanti, Luciano & Manfredi, Piero, 2007. "Chaotic business cycles and fiscal policy: An IS-LM model with distributed tax collection lags," Chaos, Solitons & Fractals, Elsevier, vol. 32(2), pages 736-744.
    • Handle: RePEc:eee:chsofr:v:32:y:2007:i:2:p:736-744
    DOI: 10.1016/j.chaos.2005.11.024
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    References listed on IDEAS

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    1. Invernizzi, Sergio & Medio, Alfredo, 1991. "On lags and chaos in economic dynamic models," Journal of Mathematical Economics, Elsevier, vol. 20(6), pages 521-550.
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    3. De Cesare, Luigi & Sportelli, Mario, 2005. "A dynamic IS-LM model with delayed taxation revenues," Chaos, Solitons & Fractals, Elsevier, vol. 25(1), pages 233-244.
    4. Mr. Nurun N. Choudhry, 1991. "Collection Lags, Fiscal Revenue and Inflationary Financing: Empirical Evidence and Analysis," IMF Working Papers 1991/041, International Monetary Fund.
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    7. Manfredi, Piero & Fanti, Luciano, 2004. "Cycles in dynamic economic modelling," Economic Modelling, Elsevier, vol. 21(3), pages 573-594, May.
    8. Mr. George Kopits, 2001. "Fiscal Rules: Useful Policy Framework or Unnecessary Ornament?," IMF Working Papers 2001/145, International Monetary Fund.
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    Cited by:

    1. Fanti, Luciano & Gori, Luca, 2011. "Stability analysis in a Cournot duopoly with managerial sales delegation and bounded rationality," MPRA Paper 33828, University Library of Munich, Germany.
    2. Muhamad Deni Johansyah & Aceng Sambas & Saleh Mobayen & Behrouz Vaseghi & Saad Fawzi Al-Azzawi & Sukono & Ibrahim Mohammed Sulaiman, 2022. "Dynamical Analysis and Adaptive Finite-Time Sliding Mode Control Approach of the Financial Fractional-Order Chaotic System," Mathematics, MDPI, vol. 11(1), pages 1-14, December.
    3. Akio Matsumoto & Ferenc Szidarovszky, 2016. "Delay Dynamics in a Classical IS-LM Model with Tax Collections," Metroeconomica, Wiley Blackwell, vol. 67(4), pages 667-697, November.
    4. Ahmad, Shabir & Ullah, Aman & Akgül, Ali, 2021. "Investigating the complex behaviour of multi-scroll chaotic system with Caputo fractal-fractional operator," Chaos, Solitons & Fractals, Elsevier, vol. 146(C).
    5. G. Rigatos & P. Siano & T. Ghosh, 2019. "A Nonlinear Optimal Control Approach to Stabilization of Business Cycles of Finance Agents," Computational Economics, Springer;Society for Computational Economics, vol. 53(3), pages 1111-1131, March.
    6. Ahmad Naimzada & Marina Pireddu, 2013. "Dynamics in a nonlinear Keynesian good market model," Working Papers 254, University of Milano-Bicocca, Department of Economics, revised Sep 2013.
    7. Fanti, Luciano & Gori, Luca, 2012. "The dynamics of a differentiated duopoly with quantity competition," Economic Modelling, Elsevier, vol. 29(2), pages 421-427.
    8. Son, Woo-Sik & Park, Young-Jai, 2011. "Delayed feedback on the dynamical model of a financial system," Chaos, Solitons & Fractals, Elsevier, vol. 44(4), pages 208-217.
    9. Igor Kotlán & Zuzana Machová, 2014. "Horizont daňové politiky v zemích OECD [Tax Policy Horizon in the OECD Countries]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(2), pages 161-173.
    10. Din Prathumwan & Kamonchat Trachoo, 2019. "Application of the Laplace Homotopy Perturbation Method to the Black–Scholes Model Based on a European Put Option with Two Assets," Mathematics, MDPI, vol. 7(4), pages 1-11, March.
    11. De Cesare, Luigi & Sportelli, Mario, 2012. "Fiscal policy lags and income adjustment processes," Chaos, Solitons & Fractals, Elsevier, vol. 45(4), pages 433-438.
    12. Din Prathumwan & Wannika Sawangtong & Panumart Sawangtong, 2017. "An Analysis on the Fractional Asset Flow Differential Equations," Mathematics, MDPI, vol. 5(2), pages 1-17, June.
    13. Chen, Wei-Ching, 2008. "Dynamics and control of a financial system with time-delayed feedbacks," Chaos, Solitons & Fractals, Elsevier, vol. 37(4), pages 1198-1207.
    14. Valls, Claudia, 2012. "Rational integrability of a nonlinear finance system," Chaos, Solitons & Fractals, Elsevier, vol. 45(2), pages 141-146.
    15. Sportelli, Mario & De Cesare, Luigi, 2019. "Fiscal policy delays and the classical growth cycle," Applied Mathematics and Computation, Elsevier, vol. 354(C), pages 9-31.
    16. Yousefpour, Amin & Jahanshahi, Hadi & Munoz-Pacheco, Jesus M. & Bekiros, Stelios & Wei, Zhouchao, 2020. "A fractional-order hyper-chaotic economic system with transient chaos," Chaos, Solitons & Fractals, Elsevier, vol. 130(C).

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