A larger country sets a lower optimal tariff

Research output: Contribution to journalArticlepeer-review

Abstract

We develop a new optimal tariff theory that is consistent with the fact that a larger country sets a lower tariff. In our dynamic Dornbusch–Fischer–Samuelson Ricardian model, the long-run welfare effects of a rise in a country’s tariff consist of the direct revenue, indirect revenue, and growth effects. Based on this welfare decomposition, we obtain two main results. First, the optimal tariff of a country is positive. Second, the optimal tariff of a country is likely to be decreasing in its absolute advantage parameter, implying that a larger (i.e., more technologically advanced) country sets a lower optimal tariff.

Original languageEnglish
Pages (from-to)643-665
Number of pages23
JournalReview of International Economics
Volume27
Issue number2
DOIs
Publication statusPublished - 2019 May

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development

Fingerprint Dive into the research topics of 'A larger country sets a lower optimal tariff'. Together they form a unique fingerprint.

Cite this