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Welfare Effects of Tariff Reduction Formulas

Jan Jørgensen and Philipp Schröder

International Trade from University Library of Munich, Germany

Abstract: WTO negotiations rely on tariff reduction formulas. It has been argued that formula approaches are of increasing importance in trade talks, because of the large number of countries involved, the wider dispersion in initial tariffs (e.g. tariff peaks) and gaps between bound and applied tariff rates. This paper resents a two country intra-industry trade model with heterogeneous firms subject to high and low tariffs. We examine the welfare effects of applying three different tariff reduction formulas proposed in the literature i) a proportional cut, ii) the Swiss formula and iii) a compression formula. No single formula dominates for all conditions. The ranking of the three tools depends on the degree of product differentiation in the industry, and the achieved reduction in the average tariff.

Keywords: Welfare; monopolistic competition; intra-industry trade; wto trade liberalization; formula approaches (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2005-06-30
Note: Type of Document - pdf; pages: 20
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Journal Article: Welfare Effects of Tariff Reduction Formulas (2011) Downloads
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