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.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Oct 1997|
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- de Meza, David, 1979. "Commercial Policy Towards Multinational Monopolies-Reservations on Katrak," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 334-37, July.
- Edward Tower, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 623-630.
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