Tariff strategies and small open economies
AbstractThis 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.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1997-23.
Length: 22 pages
Date of creation: Dec 1997
Date of revision:
Publication status: Published in: Canadian Journal of Economics. February 2000; 33(1): 25-40
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small economy; optimal tariffs; Stackelberg leader;
Other versions of this item:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F35 - International Economics - - International Finance - - - Foreign Aid
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- Kempf, H. & Rota Graziosi, G., 2010. "Endogenizing leadership in tax competition: a timing game perspective," Working papers 299, Banque de France.
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Working Papers in Economics
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- 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.
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- Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer, vol. 7(1), pages 31-52, March.
- Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 768-776, October.
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