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Tariff and Equilibrium Indeterminacy

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  • Zhang, Yan

Abstract

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.

Suggested Citation

  • Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy," MPRA Paper 11370, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11370
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    References listed on IDEAS

    as
    1. 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.
    2. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(II)," MPRA Paper 10043, University Library of Munich, Germany.
    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 541-554, August.
    4. Chao Wei, 2003. "Energy, the Stock Market, and the Putty-Clay Investment Model," American Economic Review, American Economic Association, vol. 93(1), pages 311-323, March.
    5. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
    12. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(I)," MPRA Paper 8338, University Library of Munich, Germany.
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    Cited by:

    1. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany.

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    More about this item

    Keywords

    Indeterminacy; Endogenous Tariff Rate; Small Open Economy; Exogenous Government Expenditure;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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