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Specific and Ad Valorem Tariffs are not Equivalent in Trade Wars

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  • Kar-yiu Wong
  • Ben Lockwood

Abstract

This note argues that when two countries choose optimal tariffs in a trade war, specific tariffs are not equivalent to ad valorem tariffs even if all markets are competitive. In particular, it shows that if a country's trading partener switches a specific tariff to an an valorem tariff that yields the same revenue at the initial trade point, the former country has an incentive to lower its tariffs.

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File URL: http://faculty.washington.edu/karyiu/papers/SpeAdVal.htm
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Bibliographic Info

Paper provided by Department of Economics at the University of Washington in its series Discussion Papers in Economics at the University of Washington with number 0081.

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Date of creation: Oct 1997
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Handle: RePEc:fth:washer:0081

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References

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  1. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 623-30, October.
  2. de Meza, David, 1979. "Commercial Policy Towards Multinational Monopolies-Reservations on Katrak," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 334-37, July.
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Citations

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Cited by:
  1. Wooders, Myrna & Zissimos, Ben & Dhillon, Amrita, 2001. "Tax Competition Reconsidered," The Warwick Economics Research Paper Series (TWERPS) 622, University of Warwick, Department of Economics.
  2. Susanna Thede, 2005. "Trade Policy Formation when Geography Matters for Specialisation," Working Papers 200519, School Of Economics, University College Dublin.
  3. Larue, Bruno & Kotchoni, Rachidi & Pouliot, Sébastien, 2013. "Non-Equivalent Ad Valorem Equivalents and Gravity," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150471, Agricultural and Applied Economics Association.
  4. Ben Zissimos & Ben Lockwood, 2004. "The GATT and Gradualism," Econometric Society 2004 North American Summer Meetings 607, Econometric Society.
  5. Nobuo Akai & Hikaru Ogawa & Yoshitomo Ogawa, 2011. "Endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax," International Tax and Public Finance, Springer, vol. 18(5), pages 495-506, October.
  6. Jan Guldager Jorgensen & Philipp J.H. Schröder, 2005. "Welfare Effects of Tariff Reduction Formulas," International Trade 0506006, EconWPA.
  7. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer, vol. 51(1), pages 139-161, September.
  8. Jørgensen, Jan G. & Schröder, Philipp J.H., 2008. "Fixed export cost heterogeneity, trade and welfare," European Economic Review, Elsevier, vol. 52(7), pages 1256-1274, October.
  9. Jan Jørgensen & Philipp Schröder, 2007. "Effects of Tariffication: Tariffs and Quotas under Monopolistic Competition," Open Economies Review, Springer, vol. 18(4), pages 479-498, September.
  10. Jørgensen Jan Guldager & Schröder Philipp J. H., 2006. "Tariffs and Firm-Level Heterogeneous Fixed Export Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-17, July.
  11. Jan G. Jorgensen & Philipp J. H. Schröder, 2002. "Effects of Tariffication: Tariffs, Quotas and VERs under Monopolistic Competition," Discussion Papers of DIW Berlin 269, DIW Berlin, German Institute for Economic Research.
  12. Aiura, Hiroshi & Ogawa, Hikaru, 2013. "Unit tax versus ad valorem tax: A tax competition model with cross-border shopping," Journal of Public Economics, Elsevier, vol. 105(C), pages 30-38.

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