Optimal Reciprocal Import Tariffs Under Variable Elasticity of Substitution

43 Pages Posted: 29 Nov 2018

See all articles by Natalia Aizenberg

Natalia Aizenberg

The Siberian Branch of the Russian Academy of Sciences - Melentiev Energy Systems Institute; Independent

Igor Bykadorov

Sobolev Institute of Mathematics; Novosibirsk State University; Novosibirsk State University of Economics and Management

Sergey Kokovin

National Research University Higher School of Economics

Date Written: November 27, 2018

Abstract

We explore the impact of reciprocal, specific or ad valorem, import tariffs on welfare among N symmetric countries (a free-trade agreement)—using the standard Krugman’s one-sector trade model, with unspecified variable-elasticity preferences (mostly under decreasing elasticity of utility). Without transport costs, any tariff is harmful, a specific import subsidy (export tariff) can be welfare-improving, whereas ad valorem tariffs or subsidies are always harmful. Under transport costs, a small ad valorem tariff can be beneficial; moreover, under sufficiently high transport costs, both kinds of tariffs can be become beneficial. The reason is mitigated distortion: excessive entry under decreasingly elastic utility.

Keywords: transport, tariff

JEL Classification: Z

Suggested Citation

Aizenberg, Natalia and Aizenberg, Natalia and Bykadorov, Igor and Kokovin, Sergey, Optimal Reciprocal Import Tariffs Under Variable Elasticity of Substitution (November 27, 2018). Higher School of Economics Research Paper No. WP BRP 204/EC/2018, Available at SSRN: https://ssrn.com/abstract=3291165 or http://dx.doi.org/10.2139/ssrn.3291165

Natalia Aizenberg

Independent ( email )

The Siberian Branch of the Russian Academy of Sciences - Melentiev Energy Systems Institute ( email )

130 Lermontov str.
Irkutsk, 664033
Russia

Igor Bykadorov

Sobolev Institute of Mathematics

4 Acad. Koptyug avenue
Novosibirsk, 630090
Russia

Novosibirsk State University ( email )

2 Pirogova Street
Novosibirsk, 630090
Russia

Novosibirsk State University of Economics and Management ( email )

56, Kamenskaya Street
Novosibirsk, 630099
Russia

Sergey Kokovin (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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