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

Yan Chen and Yan Zhang

Macroeconomic Dynamics, 2011, vol. 15, issue 2, 279-291

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.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:15:y:2011:i:02:p:279-291_09

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