Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-06T02:20:21.764Z Has data issue: false hasContentIssue false

TARIFF AND EQUILIBRIUM INDETERMINACY: A GLOBAL ANALYSIS

Published online by Cambridge University Press:  24 September 2012

Yan Zhang*
Affiliation:
Shanghai Jiao-Tong University
Yan Chen
Affiliation:
Arizona State University
*
Address correspondence to: Yan Zhang, Department of Economics, School of Economics, Antai College of Economics and Management, Shanghai Jiao-Tong University, 535 FaHuaZhen Road, Shanghai, 200052, People's Republic of China; e-mail: [email protected].

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.

Type
Articles
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aguiar-Conraria, L. and Wen, Y. (2005) Foreign Trade and Equilibrium Indeterminacy. Working paper 2005-041a, Federal Reserve Bank of St. Louis.CrossRefGoogle Scholar
Aguiar-Conraria, L. and Wen, Y. (2007) Understanding the large negative impact of oil shocks. Journal of Money, Credit and Banking 39, 925944.CrossRefGoogle Scholar
Aguiar-Conraria, L. and Wen, Y. (2008) A note on oil dependence and economic instability. Macro- economic Dynamics 12, 717723.CrossRefGoogle Scholar
Bizer, D. and Stuart, C. (1987) The public finance of a protective tariff: The case of an oil import fee. American Economic Review 77 (5), 10191022.Google Scholar
Christiano, L.J. and Harrison, S.G. (1999) Chaos, sunspots, and automatic stabilizers in a business cycle model. Journal of Monetary Economics 44, 331.CrossRefGoogle Scholar
de Miguel, C. and Manzano, B. (2006) Optimal oil taxation in a small open economy. Review of Economic Dynamics 9, 438454.CrossRefGoogle Scholar
Gardini, L., Hommes, C., Tramontana, F., and de Vilder, R. (2009) Forward and backward dynamics in implicitly defined overlapping generations models. Journal of Economic Behavior and Organization 71, 110129.CrossRefGoogle Scholar
Kennedy, J.A., Stockman, D.R., and Yorke, J.A. (2008) The inverse limits approach to models with chaos. Journal of Mathematical Economics 44, 423444.CrossRefGoogle Scholar
Medio, A. and Raines, B.E. (2007) Backward dynamics in economics: The inverse limit approach. Journal of Economic Dynamics and Control 31, 16331671.CrossRefGoogle Scholar
Michener, R. and Ravikumar, B. (1998) Chaotic dynamics in a cash-in-advance economy. Journal of Economic Dynamics and Control 22, 11171137.CrossRefGoogle Scholar
Rotemberg, J. and Woodford, M. (1994) Energy taxes and aggregate economic activity. In Poterba, J. (ed.), Tax Policy and the Economy, vol. 8, pp. 159195. Cambridge, MA: MIT Press.Google Scholar
Schmitt-Grohe, S. and Uribe, M. (1997) Balanced-budget rules, distortionary taxes and aggregate instability. Journal of Political Economy 105, 9761000.CrossRefGoogle Scholar
Smirnov, G.V. (2002) Introduction to the Theory of Differential Inclusions. Providence, RI: American Mathematical Society.Google Scholar
Stockman, D. (2009) Chaos and sector specific externalities. Journal of Economic Dynamics and Control 33, 20302046.CrossRefGoogle Scholar
Stockman, D. (2010) Balanced-budget rules: Chaos and deterministic sunspots. Journal of Economic Theory 145, 10601085.CrossRefGoogle Scholar
Zhang, Y. (2009) Tariff and Equilibrium Indeterminacy. Mimeo, New York University. http://mpra.ub.uni-muenchen.de/13099/.Google Scholar