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Tariff And Equilibrium Indeterminacy: A Global Analysis

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  • Zhang, Yan
  • Chen, Yan

Abstract

Zhang [Tariff and Equilibrium Indeterminacy, available at http://mpra.ub.uni-muenchen.de/13099/ (2009)] shows that endogenous tariffs (or energy taxes) and endogenous labor income taxes are equivalent in generating local indeterminacy. Using methods developed by Stockman [Journal of Economic Theory 145 (2010), 1060–1085], we extend Zhang's analysis to prove that endogenous tariffs and endogenous labor income taxes are also equivalent in generating global indeterminacy (chaotic equilibria) under a balanced-budget rule. More precisely, we show that the existence of Euler equation branching in an arbitrarily small neighborhood of a steady state can imply topological chaos in the sense of Devaney. In addition, Euler equation branching occurs regardless of the local uniqueness of the equilibrium around the steady state.

Suggested Citation

  • Zhang, Yan & Chen, Yan, 2012. "Tariff And Equilibrium Indeterminacy: A Global Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S3), pages 394-410, November.
    • Handle: RePEc:cup:macdyn:v:16:y:2012:i:s3:p:394-410_00
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    References listed on IDEAS

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    1. Gardini, Laura & Hommes, Cars & Tramontana, Fabio & de Vilder, Robin, 2009. "Forward and backward dynamics in implicitly defined overlapping generations models," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 110-129, August.
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    3. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.
    4. Stockman, David R., 2010. "Balanced-budget rules: Chaos and deterministic sunspots," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1060-1085, May.
    5. Luõs 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, June.
    6. Schmitt-Grohe, Stephanie & Uribe, Martin, 1997. "Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 976-1000, October.
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    Cited by:

    1. Snudden, Stephen, 2016. "Cyclical fiscal rules for oil-exporting countries," Economic Modelling, Elsevier, vol. 59(C), pages 473-483.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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