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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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
381.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:381
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Find related papers by JEL classification: F10 - International Economics - - Trade - - - General F11 - International Economics - - Trade - - - Neoclassical Models of Trade
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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