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Tariff index theory


  • Anderson, James E.


For a single tariff, the height of the tariff is an unambiguous measure of the policy's restrictiveness. With more than one tariff, theory has not provided an extension that captures the idea of the tariff's height, so analysts have used index numbers such as the mean and the coefficient of variation (standard deviation divided by the mean) of tariffs. By contrast, the theoretical literature on the piecemeal reform of tariffs shows that efficiency gains from tariff reform depend on complex conditions that have little relation to the mean or variance of tariffs. But in the absence of a connection between theory and empirical measures, it is difficult to know whether to discard the measures. Moreover, the piecemeal reform question of measuring the welfare gain from a tariff is not directly related to the problem of evaluating the height of restrictiveness. The problem of finding a single number analogous to the height of tariffs is the tariff index number problem. The authors have developed a solution: the Trade Restrictiveness Index, which they define as the uniform tariff factor that is equivalent in trade restrictiveness (equivalent in the balance of trade) to the actual differentiated tariff structure. Here, the author develops the Trade Restrictiveness Index in terms of mean and variance-covariance indexes of the tariff schedule. There are two payoffs. First, the Trade Restrictiveness Index can be decomposed into expressions that rescue the commonsense idea that lower mean and lower variance of tariffs are both efficient. Second, a special case is offered in which the proper weights in the mean and variance of tariffs are the observed trade weights. Thus, the Trade Restrictiveness Index is superior to traditional summary measures such as the average tariff rate and the coefficient variation for the tariff schedule. It requires only limited additional information on the structure of the economy to yield a measure that is preferable on both theoretical and practical grounds.

Suggested Citation

  • Anderson, James E., 1992. "Tariff index theory," Policy Research Working Paper Series 1023, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1023

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    References listed on IDEAS

    1. James E. Anderson & J. Peter Neary, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 107-125.
    2. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
    3. Anderson, James E. & Bannister, Geoffrey, 1992. "The trade restrictiveness index : an application to Mexican agriculture," Policy Research Working Paper Series 874, The World Bank.
    4. Bertrand, Trent J & Vanek, Jaroslav, 1971. "The Theory of Tariffs, Taxes, and Subsidies: Some Aspects of the Second Best," American Economic Review, American Economic Association, vol. 61(5), pages 925-931, December.
    5. Tatsuo Hatta, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 1-21.
    6. Hatta, Tatsuo, 1977. "A Recommendation for a Better Tariff Structure," Econometrica, Econometric Society, vol. 45(8), pages 1859-1869, November.
    7. Lopez, Ramon & Panagariya, Arvind, 1992. "On the Theory of Piecemeal Tariff Reform: The Case of Pure Imported Intermediate Inputs," American Economic Review, American Economic Association, vol. 82(3), pages 615-625, June.
    8. Fukushima, Takashi, 1979. "Tariff Structure, Nontraded Goods and Theory of Piecemeal Policy Recommendations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 427-435, June.
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    Cited by:

    1. O'Rourke, Kevin H., 1997. "Measuring protection: a cautionary tale," Journal of Development Economics, Elsevier, vol. 53(1), pages 169-183, June.
    2. Lloyd, P. J. & MacLaren, D., 2002. "Measures of trade openness using CGE analysis," Journal of Policy Modeling, Elsevier, vol. 24(1), pages 67-81, March.
    3. Maria Cipollina & Luca Salvatici, 2008. "Measuring Protection: Mission Impossible?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 577-616, July.
    4. Martin, Will, 2005. "Outgrowing resource dependence theory and some recent developments," Policy Research Working Paper Series 3482, The World Bank.
    5. James E. Anderson & J. Peter Neary, 2003. "The Mercantilist Index of Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 627-649, May.
    6. Salvatici, Luca & Carter, Colin A. & Sumner, Daniel A., 1997. "The Trade Restrictiveness Index: The Potential Contribution To Agricultural Policy Analysis," 1997 Annual meeting, July 27-30, Toronto, Canada 21028, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595 Elsevier.
    8. Anderson, James E. & Neary, J. Peter, 2007. "Welfare versus market access: The implications of tariff structure for tariff reform," Journal of International Economics, Elsevier, vol. 71(1), pages 187-205, March.
    9. Anderson, James E & Bannister, Geoffrey J & Neary, J Peter, 1995. "Domestic Distortions and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 139-157, February.
    10. Bond,Eric W., 1997. "Using tariff indices to evaluate preferential trading arrangements : an application to Chile," Policy Research Working Paper Series 1751, The World Bank.
    11. James E. Anderson & J. Peter Neary, 2004. "Welfare vs. Market Access: The Implications of Tariff Structure for Tariff Reform," NBER Working Papers 10730, National Bureau of Economic Research, Inc.
    12. Federico, Giovanni & Vasta, Michelangelo, 2015. "What Do We Really Know About Protection Before The Great Depression: Evidence From Italy," CEPR Discussion Papers 10522, C.E.P.R. Discussion Papers.
    13. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS, University of London, UK.
    14. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, EconWPA.
    15. Christos Pantzios, 2000. "Trade Restrictiveness in the Presence of 'New' Goods," Open Economies Review, Springer, vol. 11(1), pages 93-101, January.


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