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What Do We Know About Tariff Incidence?

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  • Stephen Tokarick
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    Abstract

    This paper examines the question: Who bears the larger portion of the excess burden of a tariff-the country that imposes it, or a country that it trades with? For a country that can influence its terms of trade, there are two ways of approaching this question. This paper shows that under certain assumptions, the extra burden from a marginal change in the homecountry tariff is shared equally between the home and foreign country at a tariff rate equal to twice the optimal tariff for the home country. Also, the cumulative welfare effect of a tariff in the home country, relative to free trade, turns out to be equalized across countries when the home tariff equals four times its optimal tariff. The paper provides an application of these results and points policymakers to the types of data that are relevant if they want to negotiate over "burden sharing."

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/182.

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    Length: 22
    Date of creation: 01 Sep 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/182

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    Related research

    Keywords: Burden sharing; home country; tariff rate; tariff rates; free trade; country tariff; terms of trade; export taxes; tariff change; trading partner; international trade; export supply; domestic demand; world trade; tax incidence; trade effect; tariff reductions; trade barriers; bilateral tariff; world price; exporting countries; terms ? of ? trade; tariff increases; preferential trade; import demand; optimal tariffs; closed economy; tariff structure; world exports; global trade; importing country; rates of protection; elasticity of substitution; global trade analysis; trading arrangements; trade models; partial equilibrium; export tax; terms ? of ? trade loss; free ? trade; price of imports; agricultural trade; taxes on international trade; political economy; trading partners; optimal tariff calculations; trade liberalization; export subsidies; protectionist devices; tariff protection; agricultural commodities; bilateral tariffs; zero tariff; trade effects; world prices; trade theory; world trade organization; import tariff; value of exports; export sector; domestic goods; import subsidy; trade levels; trade policies; value of imports;

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    1. Hamilton, Bob & Whalley, John, 1983. "Optimal tariff calculations in alternative trade models and some possible implications for current world trading arrangements," Journal of International Economics, Elsevier, vol. 15(3-4), pages 323-348, November.
    2. repec:rus:hseeco:123040 is not listed on IDEAS
    3. Markusen, James R & Wigle, Randall M, 1989. "Nash Equilibrium Tariffs for the United States and Canada: The Roles of Country Size, Scale Economies, and Capital Mobility," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 368-86, April.
    4. Markusen, James R., 1981. "The distribution of gains from bilateral tariff reductions," Journal of International Economics, Elsevier, vol. 11(4), pages 553-572, November.
    5. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February.
    6. Stephen Tokarick, 2003. "Measuring the Impact of Distortions in Agricultural Trade in Partial and General Equilibrium," IMF Working Papers 03/110, International Monetary Fund.
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