Tariffs and welfare in new trade theory models

Gabriel Felbermayr, Benjamin Jung and Mario Larch

No 41, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: Arkolakis, Costinot and Rodriguez-Clare (ACR, 2012) prove that, conditional on the change in openness, the welfare gains from foreign trade reforms are quantitatively identical across single-sector trade models with radically different micro-foundations. We generalize this result to domestic and multilateral trade reforms. And we extend it to cover revenue generating import tariffs. This gives rise to a new type of welfare isomorphisms across models and liberalization scenarios and allows deriving a structurally identical optimal tariff formula. In contrast to the case of iceberg trade costs, welfare formulas based on tariff reforms are highly nonlinear and build on different types of trade elasticities and openness indices. Most importantly, the ACR iceberg formula necessarily underestimates the gains from trade. A stylized calibration of the model shows that the underestimation can be large.

Keywords: Gravity Equation; Monopolistic Competition; Heterogeneous Firms; Armington Model; International Trade; Trade Policy; Gains from Trade (search for similar items in EconPapers)
JEL-codes: F12 R12 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:41

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