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Can The Optimal Tariff Be Zero For A Growing Large Country?

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  • Takumi Naito

Abstract

Can the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera‐Batiz–Romer lab‐equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic revenue share is a sufficient statistic for its long‐run growth rate, but it is not for its long‐run welfare. A unilateral tariff reduction by either country always increases the balanced growth rate. A zero tariff is locally optimal for a country under a mild condition, which is automatically satisfied at a symmetric balanced growth path with the zero tariff.

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  • Takumi Naito, 2021. "Can The Optimal Tariff Be Zero For A Growing Large Country?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1237-1280, August.
  • Handle: RePEc:wly:iecrev:v:62:y:2021:i:3:p:1237-1280
    DOI: 10.1111/iere.12528
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