Tariff and Equilibrium Indeterminacy

Zhang, Yan (2008): Tariff and Equilibrium Indeterminacy.

Abstract

We examine the role of tariffs levied on the imported production factor in a one-sector small open economy real business cycle model. We show that under perfect competition and constant returns-to-scale, the model may exhibit local indeterminacy and sunspots as tariff rates are endogenously determined by a balanced-budget rule with a constant level of government expenditures. Conversely, the economy in which the government finances endogenous public spending and transfers with fixed tariff rates is immune to indeterminacy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Indeterminacy, Endogenous Tariff Rate, Small Open Economy, Exogenous Government Expenditure
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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