Tariff pass‐through in the middle products model

Eric Bond

International Journal of Economic Theory, 2021, vol. 17, issue 1, 20-30

Abstract: I use the middle products model of Sanyal and Jones to study the pass‐through of a tariff on the price of non‐traded final goods. I extend their analysis by comparing the short‐run effect of the tariff, when all factors are immobile, with the effects when labor is mobile between all sectors. It is shown that the short‐run pass‐through may vary from zero to a magnified effect on the price of the final product, depending on the elasticities of substitution in consumption and production. The relative magnitude of these elasticities determines whether the pass‐through with labor mobility is greater or less than the short‐run pass‐through.

Date: 2021
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https://doi.org/10.1111/ijet.12293

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