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Specific and ad valorem tariffs are not equivalent in trade wars

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  • Lockwood, Ben
  • Wong, Kar-yiu

Abstract

This note argues that when two countries choose optimal tariffs in a trade war, specific tariffs are not equivalent to ad valorem tariffs even if all markets are competitive. In particular, it shows that if a country's trading partener switches a specific tariff to an an valorem tariff that yields the same revenue at the initial trade point, the former country has an incentive to lower its tariffs.

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File URL: http://www.sciencedirect.com/science/article/B6V6D-4105CKG-9/2/65e5714aec3956aaab570d4a10752089
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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 52 (2000)
Issue (Month): 1 (October)
Pages: 183-195

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Handle: RePEc:eee:inecon:v:52:y:2000:i:1:p:183-195

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 623-30, October.
  2. de Meza, David, 1979. "Commercial Policy Towards Multinational Monopolies-Reservations on Katrak," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 334-37, July.
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Citations

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Cited by:
  1. Nobuo Akai & Hikaru Ogawa & Yoshitomo Ogawa, 2011. "Endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax," International Tax and Public Finance, Springer, vol. 18(5), pages 495-506, October.
  2. Marko Koethenbuerger, 2012. "Competition for Migrants in a Federation: Tax or Transfer Competition?," EPRU Working Paper Series 2012-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Susanna Thede, 2005. "Trade Policy Formation when Geography Matters for Specialisation," Working Papers 200519, School Of Economics, University College Dublin.
  4. Larue, Bruno & Kotchoni, Rachidi & Pouliot, Sébastien, 2013. "Non-Equivalent Ad Valorem Equivalents and Gravity," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150471, Agricultural and Applied Economics Association.
  5. Amrita Dhillon & Myrna H. Wooders & Ben Zissimos, 2006. "Tax Competition Reconsidered," Vanderbilt University Department of Economics Working Papers 0602, Vanderbilt University Department of Economics.
  6. Jan G. Jorgensen & Philipp J. H. Schröder, 2002. "Effects of Tariffication: Tariffs, Quotas and VERs under Monopolistic Competition," Discussion Papers of DIW Berlin 269, DIW Berlin, German Institute for Economic Research.
  7. Jørgensen, Jan G. & Schröder, Philipp J.H., 2008. "Fixed export cost heterogeneity, trade and welfare," European Economic Review, Elsevier, vol. 52(7), pages 1256-1274, October.
  8. Ben Zissimos & Ben Lockwood, 2004. "The GATT and Gradualism," Econometric Society 2004 North American Summer Meetings 607, Econometric Society.
  9. Jan G. Jorgensen & Philipp J. H. Schröder, 2005. "Tariffs and Firm-Level Heterogeneous Fixed Export Costs," Discussion Papers of DIW Berlin 496, DIW Berlin, German Institute for Economic Research.
  10. Aiura, Hiroshi & Ogawa, Hikaru, 2013. "Unit tax versus ad valorem tax: A tax competition model with cross-border shopping," Journal of Public Economics, Elsevier, vol. 105(C), pages 30-38.
  11. Hikaru Ogawa & Hiroshi Aiura, 2012. "Unit Tax versus Ad Valorem Tax: A Tax Competition Model with Cross-border Shopping," ERSA conference papers ersa12p428, European Regional Science Association.
  12. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer, vol. 51(1), pages 139-161, September.
  13. Jan Guldager Jørgensen & Philipp J.H. Schröder, 2011. "Welfare Effects of Tariff Reduction Formulas," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 664-673, 09.
  14. Jan Jørgensen & Philipp Schröder, 2007. "Effects of Tariffication: Tariffs and Quotas under Monopolistic Competition," Open Economies Review, Springer, vol. 18(4), pages 479-498, September.

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