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Lerner Symmetry: A Modern Treatment

Arnaud Costinot and Iván Werning

American Economic Review: Insights, 2019, vol. 1, issue 1, 13-26

Abstract: Which policies are protectionist and which ones are not? The Lerner Symmetry Theorem establishes that import tariffs and export taxes are equally protectionist. In this paper we provide a modern treatment of this classical result, highlighting the importance of multinational firms, global imbalances, and imperfect competition. Under perfect competition, the result follows from the separability of consumption and production across countries, ruling out tourism and some forms of multinational firms, but not others. Though we do not require trade balance, the role of initial assets is subtle: our result rules out foreign ownership of domestic assets, but does not constrain domestic ownership of foreign assets. Under imperfect competition, our result effectively rules out all multinational firms. We conclude by discussing the implications for border adjustment taxes.

JEL-codes: D41 D43 F13 F14 F23 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aeri.20170006
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