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The Optimal Tariff, Production Lags and Time Consistency

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  • Lapan, Harvey E.

Abstract

The optimal tariff for a large country equals the reciprocal of the foreign export elasticity of supply. However, if prod uction decisions occur before consumption decisions, the ex ante opti mal tariff is not time consistent because the ex post elasticity is l ess than the ex ante elasticity. The author shows all countries are w orse off if the large country cannot precommit to its ex ante optimal tariff, and that all countries can gain if the large country taxes d omestic production of importables.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10816.

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Date of creation: 01 Jun 1988
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Publication status: Published in American Economic Review, June 1988, vol. 78 no. 3, pp. 395-340
Handle: RePEc:isu:genres:10816

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Cited by:
  1. Julio J. Rotemberg & Garth Saloner, 1990. "Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade," NBER Working Papers 3228, National Bureau of Economic Research, Inc.
  2. Dinlersoz, Emin & Dogan, Can, 2010. "Tariffs versus anti-dumping duties," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 436-451, June.
  3. William Milberg, 1999. "The Rhetoric of Policy Relevance in International Economics," Macroeconomics 9904009, EconWPA.
  4. Lapan, Harvey E. & Melkonian, Tigran A., 2002. "Trade Policy Under Asymmetric Information," Staff General Research Papers 10026, Iowa State University, Department of Economics.
  5. Tsuyoshi Toshimitsu, 2012. "Free Trade, Time-Consistent Tariff, and Market Size: The Role of GATT/WTO as Commitment Devices," Discussion Paper Series 79, School of Economics, Kwansei Gakuin University, revised Jan 2012.
  6. Richard Chisik & Ronald B. Davies, 2000. "Gradualism in Tax Treaties with Irreversible Foreign Direct Investment," University of Oregon Economics Department Working Papers 2000-3, University of Oregon Economics Department, revised 01 Jun 2002.
  7. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
  8. K.C. Fung & Robert W. Staiger, 1994. "Trade Liberalization and Trade Adjustment Assistance," NBER Working Papers 4847, National Bureau of Economic Research, Inc.
  9. Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Time Consistent Export Quotas in an Oligopolistic World Market," Staff General Research Papers 5186, Iowa State University, Department of Economics.
  10. Jean-Philippe Gervais, 2001. "Production uncertainty and trade policy commitment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(1), pages 1-21.
  11. Richard Chisik, 2010. "Trade Disputes, Quality Choice, and Economic Integration," Working Papers 022, Ryerson University, Department of Economics.
  12. Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
  13. Al-Saadon, Yousef & Das, Satya P., 1996. "Host-country policy, transfer pricing and ownership distribution in international joint ventures: A theoretical analysis," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 345-364, May.
  14. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA.
  15. Peter Welzel, 1992. "A note on the time inconsistency of strategic trade policy," Open Economies Review, Springer, vol. 3(2), pages 203-214, June.
  16. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.

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