On the Equivalence of Tariffs and Quotas for Customs Unions

Jørgen Drud Hansen () and Davide Sala ()
Additional contact information
Jørgen Drud Hansen: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

No 11/2013, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: While quotas can be expressed in tariff-equivalent terms and have identical economic effects under some conditions, they do not share the same welfare implications with tariffs in the presence of a piecemeal reform (second-best). In this paper we show that this non-welfare equivalence persists in perfect competition when countries undergo regional integration. A Pareto improving customs union is nevertheless viable in both protection regimes, but it requires different trade policy adjustments. When we extend the analysis beyond the competitive framework and consider shocks to the economy or imperfect markets, this general desirability of unions is unfortunately lost. But we show that, interestingly, the equivalence between tariff and quota regimes can still arise under particular circumstances, and only quotas provide countries with full insurance from price fluctuations.

Keywords: Equivalence; tariffs and quotas; customs union (search for similar items in EconPapers)
JEL-codes: F13 F15 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-08-13
New Economics Papers: this item is included in nep-spo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.sdu.dk/-/media/files/om_sdu/institutte ... 2013/dpbe11_2013.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:sdueko:2013_011

Access Statistics for this paper

More papers in Discussion Papers on Economics from University of Southern Denmark, Department of Economics Department of Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Astrid Holm Nielsen ().