Are Uniform Tariffs Optimal?
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper analyzes whether uniform tariffs give rise to the highest welfare compared with tariffs that either escalate or de-escalate along the value chain of production. We show that countries may be better off with de-escalating tariffs where tariff rates are higher on intermediate inputs and lower on final goods. The key point is that higher tariffs can encourage agglomeration of intermediate input suppliers and final goods producers in one country. With high tariffs on intermediate inputs, the benefits of close proximity to final goods producers may outweigh the benefits of locating according to comparative advantage, which is more likely when the share of intermediate inputs in producing final goods is high. De-escalating tariffs yield the highest welfare when the benefits of agglomeration are very high. These benefits of agglomeration accrue to both countries in the form of lower prices.
Series:
Working Paper No. 2004/072
Subject:
Commodity markets Economic sectors Financial markets Labor Manufacturing Revenue administration Tariffs Taxes Trade facilitation
English
Publication Date:
April 1, 2004
ISBN/ISSN:
9781451849370/1018-5941
Stock No:
WPIEA0722004
Pages:
19
Please address any questions about this title to publications@imf.org