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Optimal Tariffs: The Evidence

Author

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  • Christian Broda
  • N. Limao
  • D. Weinstein

    () (Columbia University)

Abstract

The theoretical debate over whether countries can and should set tariffs in response to export elasticities goes back over a century to the writings of Edgeworth (1894) and Bickerdike (1907). Despite the optimal tariff argument's centrality in debates over trade policy, there exists no evidence about whether countries actually apply it when setting tariffs. We estimate disaggregate export elasticities and find evidence that countries that are not members of the World Trade Organization systematically set higher tariffs on goods that are supplied inelastically. The result is robust to the inclusion of political economy variables and a variety of model specifications. Moreover, we find that countries with higher aggregate market power have on average higher tariffs. In short, we find strong evidence in favor of the optimal tariff argument

Suggested Citation

  • Christian Broda & N. Limao & D. Weinstein, 2006. "Optimal Tariffs: The Evidence," 2006 Meeting Papers 381, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:381
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Paola Conconi & Giovanni Facchini & Maurizio Zanardi, 2012. "Fast-Track Authority and International Trade Negotiations," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 146-189, August.
    2. Antràs, Pol & Padró i Miquel, Gerard, 2011. "Foreign influence and welfare," Journal of International Economics, Elsevier, pages 135-148.
    3. Diakantoni, Antonia & Escaith, Hubert, 2012. "Reassessing effective protection rates in a trade in tasks perspective: Evolution of trade policy in "Factory Asia"," MPRA Paper 41723, University Library of Munich, Germany.
    4. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    5. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).
    6. repec:eee:reecon:v:71:y:2017:i:4:p:759-783 is not listed on IDEAS
    7. Guillaume Daudin & Elizaveta Archanskaia, 2012. "Heterogeneity and distance puzzle," Working Papers hal-01073683, HAL.
    8. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-2065, December.
    9. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
    10. Antoine Bouët & David Laborde Debucquet, 2012. "Food crisis and export taxation: the cost of non-cooperative trade policies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 209-233, April.
    11. Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
    12. Bouet, Antoine & Laborde Debucquet, David, 2010. "Economics of export taxation in a context of food crisis," IFPRI discussion papers 994, International Food Policy Research Institute (IFPRI).

    More about this item

    Keywords

    Optimal Tariffs; Trade Policy;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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