Whom to Send to Doha? The Shortsighted Ones!

Mario Larch and Wolfgang Lechthaler

No 1695, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Why are empirically observed tariffs so much lower than theoretically calculated Nash-equilibrium tariffs? We argue that this gap can be narrowed by using a dynamic model instead of a static model. This approach has two advantages. (i) It allows us to take account of the transitional process after a change in tariffs. (ii) It allows us to take account of the shortsightedness of policy makers. We show that Nash-equilibrium tariffs based on a dynamic trade model are lower than Nash-equilibrium tariffs based on a static model. We also show that shortsighted politicians tend to set lower tariffs than politicians with a long planning horizon.

Keywords: Bubbles; fiscal theory of the price level; collateral constraints; neutrality; transversality conditions (search for similar items in EconPapers)
JEL-codes: F11 F12 F13 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Whom to send to Doha? The Short-sighted Ones! (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1695

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