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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Sharon Harrison

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August 1996Chaos, Sunspots, and Automatic Stabilizers
with Lawrence J. Christiano: w5703
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 equilibr...

Published: Journal of Monetary Economics, Vol. 44, no. 1 (August 1999): 3-31. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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