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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.

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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
    DOI: 10.1111/j.1475-4932.2009.00599.x
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    1. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
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    4. Lisa Gropp & Patrick Jomini & John Salerian, 2009. "A Reply to Professor Dixon’s Comments on the Productivity Commission’s Modelling of Automotive Assistance," Economic Papers, The Economic Society of Australia, vol. 28(1), pages 19-24, March.
    5. Satish Chand & Kunal Sen, 2002. "Trade Liberalization and Productivity Growth: Evidence from Indian Manufacturing," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 120-132, February.
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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, vol. 1(1), pages 1-110, June.
    2. Hertel, Thomas, 2013. "Global Applied General Equilibrium Analysis Using the Global Trade Analysis Project Framework," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 815-876, Elsevier.
    3. Janine Dixon, 2017. "The Impact on Australia of Trump's 45 per cent Tariff on Chinese Imports," Economic Papers, The Economic Society of Australia, vol. 36(3), pages 266-274, September.
    4. Evans, Olaniyi, 2019. "The effects of US-China trade war and Trumponomics," MPRA Paper 93682, University Library of Munich, Germany.
    5. James A. Giesecke & Nhi H. Tran & Robert Waschik, 2021. "Should Australia be concerned by Beijing’s trade threats: modelling the economic costs of a restriction on imports of Australian coal," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(1), pages 1-22, January.
    6. Blanc, Elodie & Monier, Erwan & Fant, Charles & Reilly, John, 2014. "Climate Change, Water Resources and Irrigated Crop Yields: A Modeling Framework for Integrated Assessment of the US," Conference papers 332547, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Giesecke, James A. & Madden, John R., 2013. "Regional Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 379-475, Elsevier.
    8. 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.
    9. Dixon, Peter B. & Rimmer, Maureen T., 2013. "Validation in Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1271-1330, Elsevier.
    10. 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, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 23-103, Elsevier.

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