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Optimal Tariffs: The Evidence

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  • Broda, Christian
  • Limão, Nuno
  • Weinstein, David E

Abstract

The theoretical debate over whether countries can and should set tariffs in response to export elasticities goes back over a century to the writings of Edgeworth (1894) and Bickerdike (1907). Despite the optimal tariff argument's centrality in debates over trade policy, there exists no evidence about whether countries actually apply it when setting tariffs. We estimate disaggregate export elasticities and find evidence that countries that are not members of the World Trade Organization systematically set higher tariffs on goods that are supplied inelastically. The result is robust to the inclusion of political economy variables and a variety of model specifications. Moreover, we find that countries with higher aggregate market power have on average higher tariffs. In short, we find strong evidence in favour of the optimal tariff argument.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5540.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5540

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Keywords: GATT; international trade; optimal tariffs; trade policy; WTO;

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Citations

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Cited by:
  1. Diakantoni, Antonia & Escaith, Hubert, 2012. "Reassessing effective protection rates in a trade in tasks perspective: Evolution of trade policy in "Factory Asia"," MPRA Paper 41723, University Library of Munich, Germany.
  2. Bouet, Antoine & Laborde Debucquet, David, 2010. "Economics of export taxation in a context of food crisis," IFPRI discussion papers 994, International Food Policy Research Institute (IFPRI).
  3. Antoine Bouët & David Laborde Debucquet, 2012. "Food crisis and export taxation: the cost of non-cooperative trade policies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(1), pages 209-233, April.
  4. Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
  5. Zissimos, Ben, 2009. "Optimum tariffs and retaliation: How country numbers matter," Journal of International Economics, Elsevier, vol. 78(2), pages 276-286, July.
  6. Paola Conconi & Giovanni Facchini & Maurizio Zanardi, 2012. "Fast-Track Authority and International Trade Negotiations," ULB Institutional Repository 2013/137521, ULB -- Universite Libre de Bruxelles.
  7. Itai Agur, 2007. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Economics Working Papers ECO2007/17, European University Institute.
  8. Antras, Pol & Padro i Miquel, Gerard, 2009. "Foreign Influence and Welfare," Scholarly Articles 3374523, Harvard University Department of Economics.
  9. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
  10. 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.

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