 Chaos, sunspots, and automatic stabilizersLawrence Christiano and Sharon Harrison No WP-96-16, Working Paper Series, Macroeconomic Issues from Federal Reserve Bank of Chicago Abstract: We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria, sunspot equilibria, cyclical and chaotic equilibria, and equilibria with deterministic or stochastic regime switching. The efficient allocation is characterized by constant employment and a constant growth rate. We identify an income tax-subsidy schedule that supports the efficient allocation as the unique equilibrium outcome. That schedule has two properties: (i) it specifies the tax rate to be an increasing function of aggregate employment, and (ii) earnings are subsidized when aggregate employment is at its efficient level. The first feature eliminates inefficient, fluctuating equilibria, while the second induces agents to internalize the externality. Keywords: Chaotic behavior in systems; Taxation; Economic stabilization (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhma:wp-96-16 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Paper Series, Macroeconomic Issues from Federal Reserve Bank of Chicago Contact information at EDIRC. |
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