TY  - JOUR
AU  - Christiano,Lawrence J.
AU  - Harrison,Sharon G.
TI  - Chaos, Sunspots, and Automatic Stabilizers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5703
PY  - 1996
Y2  - August 1996
UR  - http://www.nber.org/papers/w5703
L1  - http://www.nber.org/papers/w5703.pdf
N1  - Author contact info:
Lawrence Christiano
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8231
Fax: 847/491-7001
E-Mail: l-christiano@northwestern.edu

Sharon Harrison
416 Washington Ave.
Pelham, NY
10803
E-Mail: sharriso@barnard.edu
AB  - 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.
ER  -