Tariffs, Habit Persistence, and the Current Account
AbstractThis paper emphasizes the importance of habit persistence in determining the effect of a permanent distortionary tariff on the current account. A distortionary tariff reduces real permanent income, requiring a fall in the standard of living. If the marginal utility of real consumption is strongly increasing in the habitual standard of living, then aggregate savings falls and the country runs a current account deficit. However, if the marginal utility of real consumption is not sufficiently strongly increasing (or is decreasing) in the habitual standards, then the tariff leads to a rise in savings and a current account surplus.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 26 (1993)
Issue (Month): 1 (February)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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- Ikeda, Shinsuke & Gombi, Ichiro, 2009.
"Habit Formation In An Interdependent World Economy,"
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- Shinsuke Ikeda & Ichiro Gombi, 2004. "Habit Formation in an Interdependent World Economy," ISER Discussion Paper 0619, Institute of Social and Economic Research, Osaka University, revised Jul 2008.
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- Johdo, Wataru, 2009. "Habit persistence and stagnation," Economic Modelling, Elsevier, vol. 26(5), pages 1110-1114, September.
- Arman Mansoorian & Simon Neaime, 1996. "Habits and Durability in Consumption, and the Effects of Tariff Protection," Working Papers 1996_02, York University, Department of Economics.
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