Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/117336
Authors: 
Schmitt, Noemi
Westerhoff, Frank
Year of Publication: 
2015
Series/Report no.: 
BERG Working Paper Series 104
Abstract: 
The seminal cobweb model by Brock and Hommes reveals that fixed-point dynamics may turn into increasingly complex dynamics as firms switch more quickly between competing expectation rules. While policy-makers may be able to manage such rational routes to randomness by imposing a proportional profit tax, the stability-ensuring tax rate may cause a very high tax burden for firms. Using a mix of analytical and numerical tools, we show that a rather small profit-dependent lump-sum tax may even be sufficient to take away the competitive edge of cheap destabilizing expectation rules, thereby contributing to market stability.
Subjects: 
cobweb models
discrete choice approach
intensity of choice
profit taxes
tax burden
stability analysis
JEL: 
D84
E30
Q11
ISBN: 
978-3-943153-21-7
Document Type: 
Working Paper

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