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What Do We Know About Tariff Incidence?

  • Stephen Tokarick
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    This paper examines the question: Who bears the larger portion of the excess burden of a tariff-the country that imposes it, or a country that it trades with? For a country that can influence its terms of trade, there are two ways of approaching this question. This paper shows that under certain assumptions, the extra burden from a marginal change in the homecountry tariff is shared equally between the home and foreign country at a tariff rate equal to twice the optimal tariff for the home country. Also, the cumulative welfare effect of a tariff in the home country, relative to free trade, turns out to be equalized across countries when the home tariff equals four times its optimal tariff. The paper provides an application of these results and points policymakers to the types of data that are relevant if they want to negotiate over "burden sharing."

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17720
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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/182.

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    Length: 22
    Date of creation: 01 Sep 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/182
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    1. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 4, pages 45-51 World Scientific Publishing Co. Pte. Ltd..
    2. Markusen, James R & Wigle, Randall M, 1989. "Nash Equilibrium Tariffs for the United States and Canada: The Roles of Country Size, Scale Economies, and Capital Mobility," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 368-86, April.
    3. Stephen Tokarick, 2003. "Measuring the Impact of Distortions in Agricultural Trade in Partial and General Equilibrium," IMF Working Papers 03/110, International Monetary Fund.
    4. repec:rus:hseeco:123040 is not listed on IDEAS
    5. Richard Arena, 2002. "Introduction," Revue d'├ęconomie politique, Dalloz, vol. 112(5), pages 627-633.
    6. Hamilton, Bob & Whalley, John, 1983. "Optimal tariff calculations in alternative trade models and some possible implications for current world trading arrangements," Journal of International Economics, Elsevier, vol. 15(3-4), pages 323-348, November.
    7. Markusen, James R., 1981. "The distribution of gains from bilateral tariff reductions," Journal of International Economics, Elsevier, vol. 11(4), pages 553-572, November.
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