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Optimal Tariffs when the Trade Elasticity Varies

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  • Tomohiro Ara

Abstract

We show that the variable nature of the trade elasticity provides new policy implications of optimal tariffs. Conditional on the two sufficient statistics for welfare, the optimal level of import tariffs is the same across different trade models with a constant trade elasticity, but more generally it depends on the micro structure that makes the trade elasticity variable. Using analytical solutions of comparative statics with respect to trade liberalization and country size, we also quantitatively compare the difference in bilateral and unilateral impacts of these competitive pressures on optimal tariffs with a variable trade elasticity.

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  • Tomohiro Ara, 2021. "Optimal Tariffs when the Trade Elasticity Varies," TUPD Discussion Papers 8, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:tupdaa:8
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    File URL: http://hdl.handle.net/10097/00133206
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