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The Lerner Symmetry Theorem: Generalizations and Qualifications

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  • Arnaud Costinot
  • Iván Werning

Abstract

The Lerner Symmetry Theorem (Lerner, 1936) establishes the equivalence between import tariffs and export taxes in a simple neoclassical economy with two countries, two final goods, and no trade costs. In this paper we provide a number of generalizations and qualifications of this well-known result. Among other things, we show that the absence of trade deficits is neither necessary nor sufficient for Lerner Symmetry to hold. We conclude by discussing its implications for border tax adjustments.

Suggested Citation

  • Arnaud Costinot & Iván Werning, 2017. "The Lerner Symmetry Theorem: Generalizations and Qualifications," NBER Working Papers 23427, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23427
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    References listed on IDEAS

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    1. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    2. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1661-1710.
    3. Emily J. Blanchard, 2009. "Trade taxes and international investment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(3), pages 882-899, August.
    4. Staiger, Robert W. & Sykes, Alan O., 2010. "‘Currency manipulation’ and world trade," World Trade Review, Cambridge University Press, vol. 9(4), pages 583-627, October.
    5. Edward John Ray, 1975. "The Impact of Monopoly Pricing on the Lerner Symmetry Theorem," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 89(4), pages 591-602.
    6. Jonathan Eaton & Gene M. Grossman & William H. Kaempfer & Edward Tower, 1983. "The Impact of Monopoly Pricing on the Lerner Symmetry Theorem: A Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 529-533.
    7. Grossman, Gene M., 1980. "Border tax adjustments: Do they distort trade?," Journal of International Economics, Elsevier, vol. 10(1), pages 117-128, February.
    8. William Kaempfer & Edward Tower, 1982. "The balance of payments approach to trade tax symmetry theorems," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 118(1), pages 148-165, March.
    9. Ronald I. McKinnon, 1966. "Intermediate Products and Differential Tariffs: A Generalization of Lerner's Symmetry Theorem," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(4), pages 584-615.
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    Cited by:

    1. Alan J. Auerbach, 2017. "Demystifying the Destination-Based Cash-Flow Tax," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 409-432.
    2. Dejanir Silva, 2019. "Optimal Fiscal Consolidation in a Currency Union," 2019 Meeting Papers 1338, Society for Economic Dynamics.
    3. Christopher Erceg & Andrea Prestipino & Andrea Raffo, 2023. "Trade Policies and Fiscal Devaluations," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(4), pages 104-140, October.
    4. Christopher Erceg & Andrea Prestipino & Andrea Raffo, 2018. "The Macroeconomic Effect of Trade Policy," 2018 Meeting Papers 221, Society for Economic Dynamics.
    5. Jorge García García & María Mercedes Collazos & David Camilo López & Enrique Montes Uribe, 2017. "Los Costos de Comerciar en Colombia – Resultados de la Encuesta de Comercio Exterior del Banco de la República," Borradores de Economia 1015, Banco de la Republica de Colombia.
    6. V. V. Chari & Juan Pablo Nicolini & Pedro Teles, 2023. "Optimal Cooperative Taxation in the Global Economy," Journal of Political Economy, University of Chicago Press, vol. 131(1), pages 95-130.
    7. Will Martin, 2018. "Trade and economic impacts of destination‐based business cash‐flow taxes," The World Economy, Wiley Blackwell, vol. 41(10), pages 2631-2649, October.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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