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Could tariffs be pro-cyclcial?

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  • James Lake

    () (Southern Methodist University)

  • Maia K. Linask

    () (University of Richmond)

Abstract

Conventional wisdom says tariffs are counter-cyclical. We analyze the relationship between business cycles and applied tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. Further investigation reveals this pro-cylicality is driven by the tariff setting behavior of developing countries; tariffs are acyclical in developed countries. We present evidence that pro-cyclical market power drives the pro-cyclicality of tariffs in developing countries, providing further evidence of the importance of terms of trade motivations in explaining trade policy.

Suggested Citation

  • James Lake & Maia K. Linask, 2015. "Could tariffs be pro-cyclcial?," Departmental Working Papers 1502, Southern Methodist University, Department of Economics.
  • Handle: RePEc:smu:ecowpa:1502
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    More about this item

    Keywords

    Applied tariff; bound tariffs; binding overhang; tariff water; business cycle;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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