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Steepest Ascent Tariff Reforms

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Author Info

  • Woodland, Alan D.

    (Department of Economics, Copenhagen Business School)

  • Raimondos-Møller, Pascalis

    (Department of Economics, Copenhagen Business School)

Abstract

This paper introduces the concept of a steepest ascent tariff reform for a small open economy. By construction, it is locally optimal in that it yields the highest gain in utility of any feasible tariff reform vector of the same length. Accordingly, it provides a convenient benchmark for the evaluation of the welfare effectiveness of other well known tariff reform rules, as e.g. the proportional and the concertina rules. We develop the properties of this tariff reform, characterize the sources of the potential welfare gains from tariff reform, use it to establish conditions under which some existing reforms are locally optimal, provide geometric illustrations and compare welfare effectiveness of reforms using numerical examples. Moreover, being a general concept, we apply it to the issue of market access and examine its implications. Overall, the paper’s contribution lies in presenting a theoretical concept where the focus is upon the size of welfare gains accruing from tariff reforms rather than simply with the direction of welfare effects that has been the concern of the literature. JEL code: F15. Keywords: Steepest ascent tariff reforms; piecemeal tariff policy; welfare; market access; small open economy.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7565
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Bibliographic Info

Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 04-2006.

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Length: 42 pages
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:hhs:cbsnow:2006_004

Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Email:
Web page: http://www.cbs.dk/departments/econ/
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Related research

Keywords: Market access; tariff reform; consumption tax reform.;

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References

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  1. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01.
  2. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1991. "Tariff Reform in a Small Open Multi-household Economy with Domestic Distortions and Nontraded Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 937-57, November.
  3. Anderson, James E. & Neary, J. Peter, 2007. "Welfare versus market access: The implications of tariff structure for tariff reform," Journal of International Economics, Elsevier, vol. 71(1), pages 187-205, March.
  4. Tirole, J. & Guesnerie, R., 1981. "Tax reform from the gradient projection viewpoint," Journal of Public Economics, Elsevier, vol. 15(3), pages 275-293, June.
  5. Turunen-Red, Arja H & Woodland, Alan D, 1991. "Strict Pareto-Improving Multilateral Reforms of Tariffs," Econometrica, Econometric Society, vol. 59(4), pages 1127-52, July.
  6. Hatta, Tatsuo, 1977. "A Recommendation for a Better Tariff Structure," Econometrica, Econometric Society, vol. 45(8), pages 1859-69, November.
  7. Ju, Jiandong & Krishna, Kala, 2000. "Welfare and market access effects of piecemeal tariff reform," Journal of International Economics, Elsevier, vol. 51(2), pages 305-316, August.
  8. Lloyd, P. J., 1974. "A more general theory of price distortions in open economies," Journal of International Economics, Elsevier, vol. 4(4), pages 365-386, November.
  9. Diewert, W. E., 1978. "Optimal tax perturbations," Journal of Public Economics, Elsevier, vol. 10(2), pages 139-177, October.
  10. James E. Anderson & J. Peter Neary, 2005. "Measuring the Restrictiveness of International Trade Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012200, December.
  11. Neary, J Peter, 1989. "Trade Liberalization and Shadow Prices in the Presence of Tariffs and Quotas," CEPR Discussion Papers 345, C.E.P.R. Discussion Papers.
  12. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  13. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
  14. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
  15. WEYMARK, John A., . "Undominated directions of tax reform," CORE Discussion Papers RP -460, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Fukushima, Takashi, 1979. "Tariff Structure, Nontraded Goods and Theory of Piecemeal Policy Recommendations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 427-35, June.
  17. Abe, Kenzo, 1992. "Tariff Reform in a Small Open Economy with Public Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 209-22, February.
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Cited by:
  1. Kreickemeier, Udo & Raimondos-Møller, Pascalis, 2008. "Tari[ff]-tax reforms and market access," Journal of Development Economics, Elsevier, vol. 87(1), pages 85-91, August.
  2. Henrik Barslund Fosse & Pascalis Raimondos‐Møller, 2012. "Reducing Tariffs According to WTO Accession Rules: The Case of Vietnam," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 331-341, 05.

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