Tariffs Trigger Economic Chaos: How Government Policy Fuels Fluctuations
Government tariffs or subsidies can lead to economic fluctuations in a country with increasing returns to scale. By introducing a constant tariff on imported goods, the economy can experience cycles, chaos, and other unpredictable patterns. This effect is similar to what happens with a constant capital tax in a closed economy. The level of tariffs can affect whether the economy is locally stable or globally unpredictable. This research shows that tariffs can play a role in shaping the dynamics of economies with social increasing returns to scale.