NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Chaos, Sunspots, and Automatic Stabilizers

Lawrence J. Christiano, Sharon G. Harrison

NBER Working Paper No. 5703
Issued in August 1996
NBER Program(s):   EFG

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.

download in pdf format
   (2273 K)

email paper

This paper is available as PDF (2273 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5703

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

Users who downloaded this paper also downloaded these:
Dolls, Fuest, and Peichl w16275 Automatic Stabilizers and Economic Crisis: US vs. Europe
Chatterjee, Cooper, and Ravikumar w3438 Participation Dynamics: Sunspots and Cycles
Auerbach and Feenberg w7662 The Significance of Federal Taxes as Automatic Stabilizers
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us