The Revenue Maximising Tariff Rate: A Theoretical Model Applied to 1890s Victoria

William Coleman ()

No 7, CEH Discussion Papers from Centre for Economic History, Research School of Economics, Australian National University

Abstract: There is a certain rate of tariff which will maximise the tariff’s revenue. Can theory give any indication as to the actual magnitude of the tariff? The paper develops a simple expression for the revenue maximising tariff rate in terms of the import share, the elasticity of supply of the good, and the elasticity of demand for the good. The model is then applied to an historical episode: the substantial reduction in tariff rates 1895 that were implemented in a previously highly protectionist Victoria by a government hungry for revenue. The model is found to be consonant with the facts of that episode.

Date: 2020-09
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