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What Do We Know About Tariff Incidence?

Author/Editor: Tokarick, Stephen
Authorized for Distribution: September 1, 2004
Electronic Access: Free Full Text (PDF file size is 220KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper examines the question: Who bears the larger portion of the excess burden of a tariff-the country that imposes it, or a country that it trades with? For a country that can influence its terms of trade, there are two ways of approaching this question. This paper shows that under certain assumptions, the extra burden from a marginal change in the homecountry tariff is shared equally between the home and foreign country at a tariff rate equal to twice the optimal tariff for the home country. Also, the cumulative welfare effect of a tariff in the home country, relative to free trade, turns out to be equalized across countries when the home tariff equals four times its optimal tariff. The paper provides an application of these results and points policymakers to the types of data that are relevant if they want to negotiate over "burden sharing."
 
Series: Working Paper No. 04/182
Subject(s): Tariffs | Burden sharing
Author's keyword(s): tariffs | excess burden | tax incidence offer curves
 
English  
    Published:   September 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1822004   Pages:   22
    Price:   US$15.00
       
     
Please address any questions about this title to publications@imf.org.