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Tariff Strategies and Small Open Economies

Author

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  • Pascalis Raimondos-Møller
  • Alan D. Woodland

Abstract

This paper examines the issue of optimal tariffs for a small economy that trades with a large economy. We define ‘small’ and ‘large’ in the sense that the world prices are determined solely by the large country and, therefore, the small country faces exogenously given world prices. Within this framework it is shown that the small country has an incentive to behave as a Stackelberg leader by committing itself to a non-zero optimal tariff. Although the small country is unable to directly affect world prices, by pre-committing to a non-zero trade tax it induces a reduction of the large country’s optimal trade tax, thereby indirectly improving its terms of trade and welfare.

Suggested Citation

  • Pascalis Raimondos-Møller & Alan D. Woodland, "undated". "Tariff Strategies and Small Open Economies," EPRU Working Paper Series 97-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:97-15
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    Cited by:

    1. Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 768-776, October.
    2. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 7(1), pages 31-52, March.
    3. Magnus Hoffmann & Grégoire Rota‐Graziosi, 2020. "Endogenous timing in the presence of non‐monotonicities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 359-402, February.
    4. Kempf, H. & Rota Graziosi, G., 2010. "Endogenizing leadership in tax competition: a timing game perspective," Working papers 299, Banque de France.
    5. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer;Economic Science Association, vol. 7(1), pages 31-52, March.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F35 - International Economics - - International Finance - - - Foreign Aid

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