What Do We Know About Tariff Incidence?
September 1, 2004
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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."
Subject: Agricultural commodities, Exports, Personal income, Tariffs, Trade liberalization
Keywords: terms of trade, WP
Pages:
22
Volume:
2004
DOI:
Issue:
182
Series:
Working Paper No. 2004/182
Stock No:
WPIEA1822004
ISBN:
9781451859294
ISSN:
1018-5941
