A Macroeconomic Tariff Game

Søren Nielsen

No 87-03, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: A two-country macro model is used to analyze domestic and international effects of the imposition of tariffs. The results on the international transmission of tariffs are then utilized in setting up a tariff game under a fixed exchange rate. In this tariff game, the non-cooperative Nash and Stackelberg equilibria entail tariffs at positive rates in both countries. With a flexible exchange rate instead the Nash equilibrium in the tariff game may have positive or negative tariff rates, but it will be unstable in any case. We also study the infinitely repeated tariff game.

Pages: 21 pages
Date: 1987-12
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:8703

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