TARIFF AND EQUILIBRIUM INDETERMINACY: A GLOBAL ANALYSIS

Yan Zhang and Yan Chen

Macroeconomic Dynamics, 2012, vol. 16, issue S3, 394-410

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.

Date: 2012
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Working Paper: Tariff and Equilibrium Indeterminacy - A Global Analysis (2009)
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