Intergenerational and international welfare leakages of a tariff in a small open economy
AbstractA dynamic overlapping-generations model of a small open economy with imperfect competition in the goods market is constructed. A tariff increase reduces output and employment and leads to an appreciation of the real exchange rate both in the impact period and in the new steady state. The tariff shock has significant intergenerational distribution effects. Old existing generations gain less than both younger existing generations and future generations. Bond policy neutralizes the intergenerational inequities and allows the computation of first-best and second-best optimal tariff rates. The first-best tariff exploits national market power, but the second-best tariff contains a correction to account for the existence of a potentially suboptimal product subsidy.
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Bibliographic InfoPaper provided by University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number 199910.
Date of creation: 1999
Date of revision:
Other versions of this item:
- Bettendorf, Leon J.H. & Heijdra, Ben J., 1999. "Intergenerational and international welfare leakages of a tariff in a small open economy," Research Report 99C19, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
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- Leon Bettendorf & Ben Heijdra, 2001. "Intergenerational and International Welfare Leakages of a Product Subsidy in a Small Open Economy," International Tax and Public Finance, Springer, vol. 8(5), pages 705-729, November.
- Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-96, September.
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- Galor, Oded, 1994. "Tariffs, Income Distribution and Welfare in a Small Overlapping-Generations Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 173-92, February.
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