Efficient barriers to trade: A sequential trade model with heterogeneous agents
This paper studies the choice of tariffs and other type of consumption taxes and subsidies in a flexible price version of the Prescott [Prescott, Edward C., 1975. Efficiency of the Natural Rate. Journal of Political Economy 83, 1229-1236.] hotels model. It is shown that a country with unstable demand may benefit from a tariff on imports. More surprisingly, the exporting country may also benefit from the tariff. In general, I consider the problem of a world planner who chooses country specific consumption taxes and subsidies. I show that buyers in countries that tend to consume relatively more in the high demand state should be taxed and buyers in countries that tend to consume relatively more in the low demand state should be subsidized.
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- Eden, Benjamin, 2007.
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- Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
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- Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-1236, December.
- Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
- James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
- Robert E. Lucas, Jr. & Michael Woodford, 1993. "Real Effects of Monetary Shocks in an Economy with Sequential Purchases," NBER Working Papers 4250, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
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