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Optimal Reciprocal Import Tariffs Under Variable Elasticity Of Substitution

Author

Listed:
  • Natalya Ayzenberg

    (Melentiev Energy Systems Institute SB RAS)

  • Igor Bykadorov

    (Sobolev Institute of Mathematics SB RAS)

  • Sergey Kokovin

    (National Research University Higher School of Economics)

Abstract

We explore the impact of reciprocal, specific or ad valorem, import tariffs on welfare among N symmetric countries (a free-trade agreement)—using the standard Krugman’s one-sector trade model, with unspecified variable-elasticity preferences (mostly under decreasing elasticity of utility). Without transport costs, any tariff is harmful, a specific import subsidy (export tariff) can be welfare-improving, whereas ad valorem tariffs or subsidies are always harmful. Under transport costs, a small ad valorem tariff can be beneficial; moreover, under sufficiently high transport costs, both kinds of tariffs can be become beneficial. The reason is mitigated distortion: excessive entry under decreasingly elastic utility.

Suggested Citation

  • Natalya Ayzenberg & Igor Bykadorov & Sergey Kokovin, 2018. "Optimal Reciprocal Import Tariffs Under Variable Elasticity Of Substitution," HSE Working papers WP BRP 204/EC/2018, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:204/ec/2018
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    Cited by:

    1. Ilaria Fusacchia, 2020. "Evaluating the Impact of the US–China Trade War on Euro Area Economies: A Tale of Global Value Chains," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(3), pages 441-468, November.

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    Keywords

    transport; tariff;

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    • Z - Other Special Topics

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