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The Consumer Tax Equivalent of a Tariff with Imperfect Substitutes

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  • JOHN SALERIAN
  • LEE DAVIS
  • PATRICK JOMINI

Abstract

In estimating the Consumer Tax Equivalent (CTE) and Producer Subsidy Equivalent (PSE) of a tariff, it is often assumed that the imported good is a perfect substitute for the relevant locally made good. However, in evaluating the economy‐wide effects of a change in tariff using general equilibrium models, it is common to assume that the imported good is an imperfect substitute (so‐called Arming‐ton assumption)1 This paper estimates CTE assuming imperfect substitution in order to be consistent with the assumption commonly used in general equilibrium models. It shows how estimates of the CTE and PSE are sensitive to assumptions about the substitution elasticity of demand and the price elasticity of supply for the locally made good.

Suggested Citation

  • John Salerian & Lee Davis & Patrick Jomini, 1999. "The Consumer Tax Equivalent of a Tariff with Imperfect Substitutes," The Economic Record, The Economic Society of Australia, vol. 75(3), pages 295-300, September.
    • Handle: RePEc:bla:ecorec:v:75:y:1999:i:3:p:295-300
    DOI: 10.1111/j.1475-4932.1999.tb02457.x
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    References listed on IDEAS

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    1. Reinert, Kenneth A. & Roland-Holst, David W., 1992. "Armington elasticities for United States manufacturing sectors," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 631-639, October.
    2. Hazledine, Tim, 1989. "Industrial Organisation Foundations Of Trade Policy Modelling," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 33(1), pages 1-19, April.
    3. Thursby, Marie C. & Johnson, Paul R. & Grennes, Thomas J., 1986. "The law of one price and the modelling of disaggregated trade flows," Economic Modelling, Elsevier, vol. 3(4), pages 293-302, October.
    4. Corden, W. M., 1971. "The substitution problem in the theory of effective protection," Journal of International Economics, Elsevier, vol. 1(1), pages 37-57, February.
    5. Tim Hazledine, 1989. "Industrial Organisation Foundations Of Trade Policy Modelling," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 33(1), pages 1-19, April.
    6. Staelin, Charles P., 1976. "A general-equilibrium model of tariffs in a noncompetitive economy," Journal of International Economics, Elsevier, vol. 6(1), pages 39-63, February.
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    Cited by:

    1. Chengyan Yue & John C. Beghin, 2017. "Tariff Equivalent And Forgone Trade Effects Of Prohibitive Technical Barriers To Trade," World Scientific Book Chapters, in: John Christopher Beghin (ed.), Nontariff Measures and International Trade, chapter 8, pages 139-150, World Scientific Publishing Co. Pte. Ltd..
    2. Jia, Zhijie & Lin, Boqiang, 2022. "Is the rebound effect useless? A case study on the technological progress of the power industry," Energy, Elsevier, vol. 248(C).

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