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The welfare consequences of import tariffs: A quantitative perspective

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  • Felbermayr, Gabriel
  • Jung, Benjamin
  • Larch, Mario

Abstract

The quantitative trade literature often does not distinguish between tariffs and iceberg trade costs. This paper explores qualitatively and quantitatively how this distinction matters for the gains from trade. Most obviously, tariffs generate government revenues, while icebergs do not. In models of monopolistic competition, they may also affect entry. Finally, depending on whether they are modeled as cost or demand shifters, tariffs may have different implications on profits, entry, and, in turn, on the elasticity of trade flows and welfare. We show that the welfare formula by Arkolakis, Costinot, and Rodriguez-Clare (2012) requires qualification, even in the simple single-sector case. We find that the quantitative welfare consequences of cost- versus demand-shifting tariffs can be important.

Suggested Citation

  • Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2015. "The welfare consequences of import tariffs: A quantitative perspective," Journal of International Economics, Elsevier, vol. 97(2), pages 295-309.
  • Handle: RePEc:eee:inecon:v:97:y:2015:i:2:p:295-309
    DOI: 10.1016/j.jinteco.2015.05.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lorenzo Caliendo & Robert C. Feenstra & John Romalis & Alan M. Taylor, 2015. "Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades," NBER Working Papers 21768, National Bureau of Economic Research, Inc.
    2. Giovanni Federico & Antonio Tena-Junguito, 2017. "A tale of two globalizations: gains from trade and openness 1800–2010," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 601-626, August.
    3. repec:bla:reviec:v:25:y:2017:i:1:p:148-164 is not listed on IDEAS
    4. Tibor Besedeš & Matthew T. Cole, 2017. "Distorted Trade Barriers: A Dissection of Trade Costs in a “Distorted Gravity” Model," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 148-164, February.
    5. Haaland, Jan I. & Venables, Anthony J., 2016. "Optimal trade policy with monopolistic competition and heterogeneous firms," Journal of International Economics, Elsevier, vol. 102(C), pages 85-95.
    6. repec:bpj:pewipo:v:18:y:2017:i:1:p:32-55:n:2 is not listed on IDEAS
    7. repec:eee:inecon:v:108:y:2017:i:c:p:260-273 is not listed on IDEAS

    More about this item

    Keywords

    Gravity equation; Monopolistic competition; Heterogeneous firms; International trade; Trade policy; Gains from trade;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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