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Optimal Tariffs: Should Australia Cut Automotive Tariffs Unilaterally?

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  • PETER B. DIXON
  • MAUREEN T. RIMMER

Abstract

We derive formulas for the optimal tariff rate in four theoretical models. We start with a model in which industries are competitive and then successively allow for: monopoly pricing by export industries, revenue-replacement costs and cold-shower effects. The theoretical formulas accurately explain results from MONASH, a detailed computable general equilibrium model. A critical parameter in determining the optimal tariff is the export-demand elasticity. Modellers are often reluctant to adopt empirically justifiable values for export-demand elasticities because such values generate embarrassingly large optimal tariff rates. A way out of this dilemma is the adoption of a non-linear cold-shower specification. Copyright © 2009 The Economic Society of Australia.

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  • Peter B. Dixon & Maureen T. Rimmer, 2010. "Optimal Tariffs: Should Australia Cut Automotive Tariffs Unilaterally?," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 143-161, June.
  • Handle: RePEc:bla:ecorec:v:86:y:2010:i:273:p:143-161
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    Cited by:

    1. Peter Dixon & Michael Jerie & Maureen Rimmer, 2016. "Modern Trade Theory for CGE Modelling: The Armington, Krugman and Melitz Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, pages 1-110.
    2. Hertel, Thomas, 2013. "Global Applied General Equilibrium Analysis Using the Global Trade Analysis Project Framework," Handbook of Computable General Equilibrium Modeling, Elsevier.
    3. Dixon, Peter & Michael Jerie & Maureen Rimmer, 2015. "Modern Trade Theory for CGE Modelling: the Armington, Krugman and Melitz Models," GTAP Technical Papers 4595, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    4. Giesecke, James A. & Madden, John R., 2013. "Regional Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, Elsevier.
    5. Siriwardana, Mahinda, 2014. "Australia’s new Free Trade Agreements with Japan and South Korea: Potential Impacts on the Resources and Agricultural Sectors and their Environmental Implications," 2014 Conference, August 28-29, 2014, Nelson, New Zealand 187405, New Zealand Agricultural and Resource Economics Society.
    6. Dixon, Peter B. & Rimmer, Maureen T., 2013. "Validation in Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, Elsevier.
    7. Dixon, Peter B. & Koopman, Robert B. & Rimmer, Maureen T., 2013. "The MONASH Style of Computable General Equilibrium Modeling: A Framework for Practical Policy Analysis," Handbook of Computable General Equilibrium Modeling, Elsevier.

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