The Consumer Tax Equivalent of a Tariff with Imperfect Substitutes

John Salerian, Lee Davis and Patrick Jomini

The Economic Record, 1999, vol. 75, issue 3, 295-300

Abstract: In estimating the Consumer Tax Equivalent (CTE) and Producer Subsidy Equivalent (PSE) of a tariff, it is often assumed that the imported good is a perfect substitute for the relevant locally made good. However, in evaluating the economy‐wide effects of a change in tariff using general equilibrium models, it is common to assume that the imported good is an imperfect substitute (so‐called Arming‐ton assumption)1 This paper estimates CTE assuming imperfect substitution in order to be consistent with the assumption commonly used in general equilibrium models. It shows how estimates of the CTE and PSE are sensitive to assumptions about the substitution elasticity of demand and the price elasticity of supply for the locally made good.

Date: 1999
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