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The welfare effects of a partial tariff reduction under domestic distortion in Japan

Akihito Asano and Michiru S Kosaka

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We examine a partial tariff reduction policy in a speci c factor model with two import-competing sectors. When one of them enjoys a higher tariff and is also subject to a production subsidy, will a tariff reduction in the other import-competing sector be welfare improving? We argue that this second-best type question is highly relevant to Japan, and calibrate our model to its 2013 economy. We nd that the policy is undesirable and that even a complete subsidy removal is insufficient to make it desirable. Making it welfare improving requires the other sector's tariff be more than halved.

Keywords: Tariff policy; domestic distortion; welfare; speci c factor model; Japanese economy (search for similar items in EconPapers)
JEL-codes: F11 F13 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-int
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