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OPTIMAL RECIPROCAL IMPORT TARIFFS UNDER VARIABLE ELASTICITY OF SUBSTITUTION

Natalya Ayzenberg (), Igor Bykadorov () and Sergey Kokovin
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Natalya Ayzenberg: Melentiev Energy Systems Institute SB RAS

HSE Working papers from National Research University Higher School of Economics

Abstract: We explore the impact of reciprocal, specific or ad valorem, import tariffs on welfare among N symmetric countries (a free-trade agreement)—using the standard Krugman’s one-sector trade model, with unspecified variable-elasticity preferences (mostly under decreasing elasticity of utility). Without transport costs, any tariff is harmful, a specific import subsidy (export tariff) can be welfare-improving, whereas ad valorem tariffs or subsidies are always harmful. Under transport costs, a small ad valorem tariff can be beneficial; moreover, under sufficiently high transport costs, both kinds of tariffs can be become beneficial. The reason is mitigated distortion: excessive entry under decreasingly elastic utility.

Keywords: transport; tariff (search for similar items in EconPapers)
JEL-codes: Z (search for similar items in EconPapers)
Pages: 43 pages
Date: 2018
New Economics Papers: this item is included in nep-int and nep-upt
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Published in WP BRP Series: Economics / EC, November 2018, pages 1-43

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https://wp.hse.ru/data/2018/11/27/1141432877/204EC2018.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:204/ec/2018

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