A welfare ranking of multilateral reductions in real and tariff trade barriers when firms are heterogenous
AbstractTrade liberalization comes about through reductions in various types of trade costs. This paper introduces, apart from real variable (i.e. iceberg) and fixed export costs, two partially redistributed tariffs into a Melitz (2003) model. We present comparable results for welfare effects and changes in industry structure by analyzing the different liberalization channels for an equal effect on openness. The welfare ranking is sensitive to the degree of efficiency in tariff redistribution, e.g. the share of tariff revenues wasted on rent-seeking activities. Ad valorem tariff cuts switch from the least to the most preferred mode of liberalization as the fraction of tariffs wasted moves from zero to unity. Apart from a situation with no tariff redistribution, reductions in iceberg trade costs are preferred to reductions in real fixed trade costs which again are preferred to cuts in unit tariffs.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2011-18.
Date of creation: 20 Dec 2011
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Web page: http://www.econ.au.dk/afn/
Real Trade Costs; Non-Tariff Barriers; Tariffs; Frictional Trade Costs; Iceberg Costs; Integration;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F15 - International Economics - - Trade - - - Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
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- Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013.
"Icebergs versus tariffs: A quantitative perspective on the gains from trade,"
University of Tuebingen Working Papers in Economics and Finance
53, University of Tuebingen, Faculty of Economics and Social Sciences.
- Gabriel J. Felbermayr & Benjamin Jung & Mario Larch, 2013. "Icebergs versus Tariffs: A Quantitative Perspective on the Gains from Trade," CESifo Working Paper Series 4175, CESifo Group Munich.
- Gabriel J. Felbermayr & Benjamin Jung & Mario Larch, 2011.
"Optimal Tariffs, Retaliation and the Welfare Loss from Tariff Wars in the Melitz Model,"
CESifo Working Paper Series
3474, CESifo Group Munich.
- Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
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