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Tariff strategies and small open economies

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  • Pascalis Raimondos-Møller
  • Alan D. Woodland

Abstract

In this paper we examine the issue of optimal tariffs for a small economy that trades with a large economy. We define "small" and "large" in the sense that the world prices are determined solely by the large country, and, therefore, the small country faces exogenously given world prices. Within this framework it is shown that there exist situations in which the small country has an incentive to behave as a Stackelberg leader by committing itself to a non-zero optimal tariff. Although the small country is unable to directly affect world prices, by pre-committing to a non-zero trade tax it may induce a reduction of the large country's optimal trade tax, thereby indirectly improving its terms of trade and welfare.

Suggested Citation

  • Pascalis Raimondos-Møller & Alan D. Woodland, 2000. "Tariff strategies and small open economies," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 25-40, February.
  • Handle: RePEc:cje:issued:v:33:y:2000:i:1:p:25-40
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    References listed on IDEAS

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    Cited by:

    1. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 7(1), pages 31-52, March.
    2. Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, pages 768-776.
    3. Kempf, H. & Rota Graziosi, G., 2010. "Endogenizing leadership in tax competition: a timing game perspective," Working papers 299, Banque de France.
    4. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer;Economic Science Association, vol. 7(1), pages 31-52, March.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F35 - International Economics - - International Finance - - - Foreign Aid

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