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Can the optimal tariff be zero for a growing large country?

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  • Takumi Naito

Abstract

Can the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera-Batiz--Romer lab-equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic revenue share is a sufficient statistic for its long-run growth rate, but it is not for its long-run welfare. A unilateral tariff reduction by either country always increases the balanced growth rate. A zero tariff is locally optimal for a country under a mild condition, which is automatically satisfied at a symmetric balanced growth path with the zero tariff.

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  • Takumi Naito, 2020. "Can the optimal tariff be zero for a growing large country?," Working Papers e146, Tokyo Center for Economic Research.
    • Handle: RePEc:tcr:wpaper:e146
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    Cited by:

    1. Ryoji Ohdoi & Kazuo Mino & Yunfang Hu, 2023. "A heterogeneous-firm model of trade and growth with country-specific credit constraints," Discussion Paper Series 256, School of Economics, Kwansei Gakuin University.
    2. KAO Kuo-Feng & MUKUNOKI Hiroshi, 2022. "Optimal Tariffs on a Monopoly Platform in Two-sided Markets," Discussion papers 22066, Research Institute of Economy, Trade and Industry (RIETI).
    3. Naito, Takumi, 2022. "Does a larger country set a higher optimal tariff with monopolistic competition and capital accumulation?," Economics Letters, Elsevier, vol. 216(C).

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