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.
ASJC Scopus subject areas
- Economics and Econometrics