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Tariffs, Habit Persistence, and the Current Account

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  • Arman Mansoorian

Abstract

This paper emphasizes the importance of habit persistence in determining the effect of a permanent distortionary tariff on the current account. A distortionary tariff reduces real permanent income, requiring a fall in the standard of living. If the marginal utility of real consumption is strongly increasing in the habitual standard of living, then aggregate savings falls and the country runs a current account deficit. However, if the marginal utility of real consumption is not sufficiently strongly increasing (or is decreasing) in the habitual standards, then the tariff leads to a rise in savings and a current account surplus.

Suggested Citation

  • Arman Mansoorian, 1993. "Tariffs, Habit Persistence, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 194-207, February.
  • Handle: RePEc:cje:issued:v:26:y:1993:i:1:p:194-207
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    Cited by:

    1. Ikeda, Shinsuke & Gombi, Ichiro, 2009. "Habit Formation In An Interdependent World Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 13(04), pages 477-492, September.
    2. Shinsuke Ikeda, 2003. "Tariffs, Time Preference, and the Current Account under Weakly Nonseparable Preferences," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 101-113, February.
    3. Arman Mansoorian & Simon Neaime, 2000. "Habits and Durability in Consumption, and the Effects of Tariff Protection," Open Economies Review, Springer, vol. 11(3), pages 195-204, July.
    4. Yoshiyasu Ono, 2014. "International Economic Interdependence and Exchange-rate Adjustment under Persistent Stagnation," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 70-92, March.
    5. Johdo, Wataru, 2009. "Habit persistence and stagnation," Economic Modelling, Elsevier, vol. 26(5), pages 1110-1114, September.

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