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Nash Equilibrium Tariffs for the United States and Canada: The Roles of Country Size, Scale Economies, and Capital Mobility

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Author Info
Markusen, James R
Wigle, Randall M

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Abstract

A theoretical analysis of "optimal" (Nash equilibrium) tariff rates is presented. A numerical general equilibrium model is then used to find Nash equilibrium tariff rates for the United States and Canada. The Nash equilibrium tariffs are small relative to partial equilibrium estimates: 18 percent for the United States and 6 percent for Canada. The United States is essentially indifferent between the Nash equilibrium and free trade, while Canada is better off at the latter by $4 billion. Empirical results support theoretical predictions that the optimal tariff is smaller when the country is smaller, there are scale economies and free entry, and capital is internationally mobile. Copyright 1989 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 97 (1989)
Issue (Month): 2 (April)
Pages: 368-86
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Handle: RePEc:ucp:jpolec:v:97:y:1989:i:2:p:368-86

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  1. Stephen Tokarick, 2004. "What Do We Know About Tariff Incidence?," IMF Working Papers 04/182, International Monetary Fund. [Downloadable!]
  2. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2006. "Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis," NBER Working Papers 12704, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Carlo Perroni & John Whalley, 1994. "The New Regionalism: Trade Liberalization or Insurance?," NBER Working Papers 4626, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. William Milberg, 1999. "The Rhetoric of Policy Relevance in International Economics," Macroeconomics 9904009, EconWPA. [Downloadable!]
  5. Broda, Christian & Limão, Nuno & Weinstein, David E, 2006. "Optimal Tariffs: The Evidence," CEPR Discussion Papers 5540, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Randall M. Wigle, 1988. "Between a Rock and a Hard Place: The Economics of Canada-U.S. Freer Trade," Canadian Public Policy, University of Toronto Press, vol. 14(1), pages 104-108, March. [Downloadable!] (restricted)
  7. Mercenier, J. & Schmitt, N., 1992. "Sunk Costs, Free-Entry Equilibrium and Trade Liberalization in Applied General Equilibrium : Implication for "Europe 1992"," Cahiers de recherche 9235, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  8. Jean Mercenier, 1994. "Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition," Staff Report 183, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  9. Gaisford, J.D. & Kerr, W.A., 1992. "Which Country Loses The Least In A Trade War?," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 36(03), December. [Downloadable!]
  10. Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1991. "Trade Liberalization in a Multinational-Dominated Industry: A Theoretical and Applied General-Equilibrium Analysis," NBER Working Papers 3679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Mordechal Kreinin & Elias Dinopoulos, 1995. "Protection of industry," Open Economies Review, Springer, vol. 6(2), pages 179-196, April. [Downloadable!] (restricted)
  12. Hwan C. Lin, 1998. "Import-Subsidy Coordination And The Gains From International Diffusion Of Differentiated Middle Products," International Economic Journal, Korean International Economic Association, vol. 12(2), pages 55-76, June. [Downloadable!] (restricted)
  13. Kamil Yilmaz, 2006. "How much should primary commodity exports be taxed? Nash and Stackelberg equilibria in the Global Cocoa Market," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 15(1), pages 1-26, March. [Downloadable!] (restricted)
  14. John Whalley, 1996. "Why Do Countries Seek Regional Trade Agreements?," NBER Working Papers 5552, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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