Can the optimal tariff be zero for a growing large country?

Takumi Naito

No e146, Working Papers from Tokyo Center for Economic Research

Abstract: Can the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera-Batiz--Romer lab-equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic revenue share is a sufficient statistic for its long-run growth rate, but it is not for its long-run welfare. A unilateral tariff reduction by either country always increases the balanced growth rate. A zero tariff is locally optimal for a country under a mild condition, which is automatically satisfied at a symmetric balanced growth path with the zero tariff.

Pages: 33 pages
Date: 2020-01
New Economics Papers: this item is included in nep-gro and nep-int
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Journal Article: CAN THE OPTIMAL TARIFF BE ZERO FOR A GROWING LARGE COUNTRY? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:tcr:wpaper:e146

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