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Optimal Tariffs: The Evidence

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  • Christian Broda
  • N. Limao
  • D. Weinstein

    () (Columbia University)

Abstract

The theoretical debate over whether countries can and should set tariffs in response to export elasticities goes back over a century to the writings of Edgeworth (1894) and Bickerdike (1907). Despite the optimal tariff argument's centrality in debates over trade policy, there exists no evidence about whether countries actually apply it when setting tariffs. We estimate disaggregate export elasticities and find evidence that countries that are not members of the World Trade Organization systematically set higher tariffs on goods that are supplied inelastically. The result is robust to the inclusion of political economy variables and a variety of model specifications. Moreover, we find that countries with higher aggregate market power have on average higher tariffs. In short, we find strong evidence in favor of the optimal tariff argument

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 381.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:381

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Keywords: Optimal Tariffs; Trade Policy;

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References

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  1. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  2. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  3. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  4. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  5. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  6. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  7. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  8. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  9. Won Chang & L. Alan Winters, 2002. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," American Economic Review, American Economic Association, vol. 92(4), pages 889-904, September.
  10. Allan Drazen & Nuno Limão, 2004. "Government Gains from Self-Restraint: A Bargaining Theory of Inefficient Redistribution," NBER Working Papers 10375, National Bureau of Economic Research, Inc.
  11. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  12. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  13. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November.
  14. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  15. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  16. 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.
  17. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
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Citations

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Cited by:
  1. Paola Conconi & Giovanni Facchini & Maurizio Zanardi, 2012. "Fast-Track Authority and International Trade Negotiations," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 146-89, August.
  2. Francis Bloch & Ben Zissimos, 2008. "Optimum Tariffs and Retaliation: How Country Numbers Matter," Vanderbilt University Department of Economics Working Papers 0802, Vanderbilt University Department of Economics.
  3. Pol Antràs & Gerard Padró i Miquel, 2008. "Foreign Influence and Welfare," NBER Working Papers 14129, National Bureau of Economic Research, Inc.
  4. Itai Agur, 2008. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Global Economy Journal, De Gruyter, vol. 8(3), pages 4.
  5. repec:eca:wpaper:2008_013 is not listed on IDEAS
  6. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
  7. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
  8. repec:bla:restud:v:76:y:2009:i:2:p:629-668 is not listed on IDEAS
  9. Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
  10. Bouet, Antoine & Laborde Debucquet, David, 2010. "Economics of export taxation in a context of food crisis," IFPRI discussion papers 994, International Food Policy Research Institute (IFPRI).
  11. Dhingra, Swati, 2006. "Re-examination of the Mayer Median Voter Model of Trade Policy," MPRA Paper 892, University Library of Munich, Germany, revised 14 Nov 2006.

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