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Tariff and Equilibrium Indeterminacy--(I)

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  • Zhang, Yan

Abstract

Schmitt-Grohe and Uribe (1997, henceforth SGU) prove that in a standard neoclassical growth model the fiscal increasing returns induced by the endogenous factor income tax rate (assuming that the government expenditure is exogenous) has a close correspondence with the production increasing returns in Benhabib and Farmer (1994) model. Wen and Aguiar-Conraria (2005, 2006, henceforth WAC ) extend the Benhabib-Farmer model to open economy by introducing imported foreign production factors. We prove that in a modified WAC model without increasing returns, using the tariff revenue from the imported production factor to finance the exogenous government expenditure, we can also have indeterminacy. From this perspective, factor income tax and tariff share similar channels to generate indeterminacy.

Suggested Citation

  • Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(I)," MPRA Paper 8338, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8338
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    References listed on IDEAS

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    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. David N. DeJong & Marla Ripoll, 2006. "Tariffs and Growth: An Empirical Exploration of Contingent Relationships," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 625-640, November.
    3. 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.
    4. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    5. 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.
    6. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
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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.
    2. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy," MPRA Paper 11370, 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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