Specific and Ad Valorem Tariffs Are Not Equivalent in Trade Wars
This note argues that when two countries choose optimal tariffs in a trade war, specific tariffs are not equivalent to ad valorem tariffs even if all markets are competitive. In particular, it shows that if a country's trading partener switches a specific tariff to an an valorem tariff that yields the same revenue at the initial trade point, the former country has an incentive to lower its tariffs.
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- Edward Tower, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 623-630.
- de Meza, David, 1979. "Commercial Policy Towards Multinational Monopolies-Reservations on Katrak," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 334-337, July.
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