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Welfare effects of unilateral changes in tariffs: the case of Motor vehicles and parts in Australia

Author

Listed:
  • Peter B. Dixon
  • Maureen T. Rimmer

Abstract

We derive formulas for the optimal tariff rate in four theoretical models. We start with a model in which industries are competitive and then successively allow for: monopoly pricing by export industries; revenue-replacement costs; and cold-shower effects. The theoretical formulas accurately explain results from MONASH, a detailed CGE model. A critical parameter in determining the optimal tariff is the export-demand elasticity. Modellers are often reluctant to adopt empirically justifiable values for export-demand elasticities because such values generate embarrassingly large optimal tariff rates. A way out of this dilemma is the adoption of a non-linear cold-shower specification.

Suggested Citation

  • Peter B. Dixon & Maureen T. Rimmer, 2008. "Welfare effects of unilateral changes in tariffs: the case of Motor vehicles and parts in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-177, Victoria University, Centre of Policy Studies/IMPACT Centre.
  • Handle: RePEc:cop:wpaper:g-177
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    References listed on IDEAS

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    1. Xiao-Guang Zhang, 2008. "The Armington General Equilibrium Model: Properties, Implications and Alternatives," Staff Working Papers 0804, Productivity Commission, Government of Australia.
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    Cited by:

    1. Lionel Bopage & Kishor Sharma, 2014. "Liberalization and Structural Change in Australian Automotive Industry: An Analysis of Trade and Productivity Performance: 1962–2008," Global Business Review, International Management Institute, vol. 15(3), pages 447-460, September.

    More about this item

    Keywords

    optimal tariff; export-demand elasticities; cold-shower effect; monopoly pricing; revenue-replacement costs;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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