CAN THE OPTIMAL TARIFF BE ZERO FOR A GROWING LARGE COUNTRY?

Takumi Naito*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Can the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera-Batiz–Romer lab-equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic revenue share is a sufficient statistic for its long-run growth rate, but it is not for its long-run welfare. A unilateral tariff reduction by either country always increases the balanced growth rate. A zero tariff is locally optimal for a country under a mild condition, which is automatically satisfied at a symmetric balanced growth path with the zero tariff.

Original languageEnglish
Pages (from-to)1237-1280
Number of pages44
JournalInternational Economic Review
Volume62
Issue number3
DOIs
Publication statusPublished - 2021 Aug

ASJC Scopus subject areas

  • Economics and Econometrics

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