Tariff strategies and small open economies

Pascalis Raimondos () and Alan Woodland

Canadian Journal of Economics, 2000, vol. 33, issue 1, 25-40

Abstract: In this paper we examine the issue of optimal tariffs for a small economy that trades with a large economy. We define "small" and "large" in the sense that the world prices are determined solely by the large country, and, therefore, the small country faces exogenously given world prices. Within this framework it is shown that there exist situations in which the small country has an incentive to behave as a Stackelberg leader by committing itself to a non-zero optimal tariff. Although the small country is unable to directly affect world prices, by pre-committing to a non-zero trade tax it may induce a reduction of the large country's optimal trade tax, thereby indirectly improving its terms of trade and welfare.

JEL-codes: F13 F35 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Tariff strategies and small open economies (1997)
Working Paper: Tariff Strategies and Small Open Economies
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