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TARIFF AND EQUILIBRIUM INDETERMINACY: A GLOBAL ANALYSIS

Published online by Cambridge University Press:  24 September 2012

Yan Zhang  and
Yan Chen
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: zhangyan77@sjtu.edu.cn.
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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.

Keywords

Endogenous Tariff RateRegime SwitchingChaos
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Supplement S3 , November 2012 , pp. 394 - 410
Copyright
Copyright © Cambridge University Press 2012

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