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A NOTE ON TARIFF POLICY, INCREASING RETURNS, AND ENDOGENOUS FLUCTUATIONS

Published online by Cambridge University Press:  14 December 2009

Yan Chen  and
Yan Zhang
Yan Chen
Affiliation:
Shandong University
Yan Zhang*
Affiliation:
Shanghai Jiao-Tong University
*
Address correspondence to: Yan Zhang, Economics Department, School of Economics, Antai College of Economics & Management, Shanghai Jiao-Tong University, 535 Fa Hua Zhen Road, Shanghai 200052, People's Republic of China; e-mail: laurencezhang@yahoo.com.
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Abstract

We show that the introduction of a constant tariff or subsidy levied on foreign energy can lead to a rich set of endogenous fluctuations around the unique steady state, including stable 2-, 4-, 8-, and 15-cycles, quasiperiodic orbits, and chaos. This is demonstrated in a standard neoclassical growth model with social increasing returns to scale. Numerical exercises could be viewed from a methodological perspective as illustrating that capital income taxes and tariffs are equivalent in generating endogenous fluctuations because Guo and Lansing [Guo, J.T. and K.J. Lansing (2002) Fiscal policy, increasing returns and endogenous fluctuations. Macroeconomic Dynamics 6, 633–664] show that a constant capital tax or subsidy has the same effect on the model dynamics in a one-sector closed economy.

Keywords

Tariff PolicyGlobal IndeterminacyChaos
Type
Notes
Information
Macroeconomic Dynamics , Volume 15 , Issue 2 , April 2011 , pp. 279 - 291
Copyright
Copyright © Cambridge University Press 2009

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