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Optimal Tariffs under a Revenue Constraint


  • Tatsuo Hatta
  • Yoshitomo Ogawa


This paper examines the optimal tariff structure under a revenue constraint. When a fixed level of tax revenue has to be collected from the tariff alone, no adjustment in tariff rates can achieve an efficient resource allocation, even in a small open economy. Hence, the optimal tariff problem arises under a revenue constraint. We show that the revenue-constrained optimal tariff structure is characterized by the following two rules: (i) the optimal tariff rate is lower for the import good that is a closer substitute for the export good, and (ii) the stronger the cross-substitutability between imports, the closer the optimal tariff is to uniformity. This provides a theoretical explanation for the finding in empirical studies that the efficiency loss from a uniform tariff structure is negligible. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

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  • Tatsuo Hatta & Yoshitomo Ogawa, 2007. "Optimal Tariffs under a Revenue Constraint," Review of International Economics, Wiley Blackwell, vol. 15(3), pages 560-573, August.
  • Handle: RePEc:bla:reviec:v:15:y:2007:i:3:p:560-573

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    References listed on IDEAS

    1. Ngo Van Long & Antoine Soubeyran, 2003. "A Theory of Favoritism under International Oligopoly," CIRANO Working Papers 2003s-15, CIRANO.
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    Cited by:

    1. Peter Neary & James E. Anderson, 2013. "Revenue Tariff Reform," Economics Series Working Papers 688, University of Oxford, Department of Economics.
    2. Anderson, James E. & Neary, J. Peter, 2016. "Sufficient statistics for tariff reform when revenue matters," Journal of International Economics, Elsevier, vol. 98(C), pages 150-159.
    3. Hatta, Tatsuo, 2015. "Revenue-Constrained Combination of an Optimal Tariff and Duty Drawback," AGI Working Paper Series 2015-19, Asian Growth Research Institute.

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