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Welfare effects of unilateral changes in tariffs: the case of Motor vehicles and parts in Australia

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  • Peter B. Dixon
  • Maureen T. Rimmer

Abstract

We derive formulas for the optimal tariff rate in four theoretical models. We start with a model in which industries are competitive and then successively allow for: monopoly pricing by export industries; revenue-replacement costs; and cold-shower effects. The theoretical formulas accurately explain results from MONASH, a detailed CGE model. A critical parameter in determining the optimal tariff is the export-demand elasticity. Modellers are often reluctant to adopt empirically justifiable values for export-demand elasticities because such values generate embarrassingly large optimal tariff rates. A way out of this dilemma is the adoption of a non-linear cold-shower specification.

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Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number g-177.

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Date of creation: Sep 2008
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Handle: RePEc:cop:wpaper:g-177

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Related research

Keywords: optimal tariff; export-demand elasticities; cold-shower effect; monopoly pricing; revenue-replacement costs;

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  1. Xiao-Guang Zhang, 2008. "The Armington General Equilibrium Model: Properties, Implications and Alternatives," Staff Working Papers 0804, Productivity Commission, Government of Australia.
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