Could tariffs be pro-cyclcial?

James Lake and Maia Linask

No 1502, Departmental Working Papers from Southern Methodist University, Department of Economics

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.

Keywords: Applied tariff; bound tariffs; binding overhang; tariff water; business cycle (search for similar items in EconPapers)
JEL-codes: E32 F13 F14 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-bec, nep-int and nep-mac
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Related works:
Journal Article: Could tariffs be pro-cyclical? (2016)
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