Commercial Policies in the Presence of Input-Output Linkages

Benjamin Jung and Wilhelm Kohler

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: How do input-output linkages modify countries' incentives to conduct commercial policies? We address this question in a version of the Melitz (2003) model where the production-side of the economy is enriched by input-output linkages. The bundle of intermediate inputs used in production in addition to labor is a composite good governed by the same CES aggregator as the final good. Cooperative policies correct for an input distortion generated by the fact that firms' markups translate into the price of the composite good. In the analysis of non-cooperative trade policy, the input distortion stemming from domestic markups counteracts the standard terms-of-trade externality, resulting in a lower optimal tariff and potentially an optimal import subsidy.

JEL-codes: D60 F12 F13 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-hme and nep-int
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145833

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