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What Do We Know About Tariff Incidence?

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

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Length: 22 pages
Date of creation: 12 Oct 2004
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Handle: RePEc:imf:imfwpa:04/182

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Keywords: Tariffs ; Burden sharing ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Stephen Tokarick, 2003. "Measuring the Impact of Distortions in Agricultural Trade in Partial and General Equilibrium," IMF Working Papers 03/110, International Monetary Fund. [Downloadable!]
  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. [Downloadable!] (restricted)
  5. repec:rus:hseeco:123040 is not listed on IDEAS
  6. 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. [Downloadable!] (restricted)
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