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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. 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.
  2. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 623-30, October.
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Cited by:
  1. 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.
  2. Amrita Dhillon & Myrna Wooders & Ben Zissimos, 2007. "Tax Competition Reconsidered," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 391-423, 06.
  3. Ben Zissimos, 2006. "The GATT and Gradualism," Vanderbilt University Department of Economics Working Papers 0619, Vanderbilt University Department of Economics.
  4. 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.
  5. 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.
  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. 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.
  8. Susanna Thede, 2005. "Trade Policy Formation when Geography Matters for Specialisation," Working Papers 200519, School Of Economics, University College Dublin.
  9. 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.

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