Tariffs and Welfare in an Imperfectly Competitive Overlapping-Generations Model

The effect of a tariff is analyzed in a two-sector model in an uncertain-lifetimes framework. One of the sectors is monopolistically competitive. It is shown that while a tariff leads to a consumption boom and possibly a current-account surplus, its welfare effects depend on whether the homogeneous good or the differentiated good is exported by the small open economy. Welfare improves if the differentiated good is nontraded but deteriorates if the homogeneous good is nontraded.     

Terms of Trade and Welfare for a Developing Economy with an Imperfectly Competitive Sector

The effect of terms of trade on the welfare of a small open economy is analyzed. It exports a homogeneous good and imports some brands of a differentiated good. It also produces some brands of the differentiated good which are not traded. A terms-of-trade deterioration causes resources to move to the nontraded, import-competing sector. The economy's income rises and the price index for the differentiated good falls, resulting in higher welfare. This accords well with the experience of developing economies of East and Southeast Asia.     

INTERNATIONAL FACTOR MOBILITY,NONTRADED GOODS AND TARIFF REFORM*

Within models of traded and nontraded goods, that ignore international factor mobility, the literature on tariff reform has established sufficient conditions under which a policy that reduces (increases) the highest (lowest) tariff to the level of the second highest (lowest) rate, or a policy that moves proportionally all tariffs to a given number improves welfare. The present paper generalizes previous studies by introducing perfect international capital mobility. It demonstrates that if all goods are normal in consumption and the nontraded good markets are locally Walras stable, then a reform policy that reduces (increases) the highest (lowest) tariff to the level of the next highest (lowest) rate improves welfare if (i) the good with the highest (lowest) tariff rate is a net substitute to all other traded goods, and (ii) the nontraded goods are net substitutes to all other goods. Second, a policy reform that moves all tariffs to a given number is always welfare improving.     

THE WELFARE EFFECTS OF FOREIGN CAPITAL INFLOW WITH TARIFF-RIDDEN AND QUOTA-RESTRICTED IMPORTS*

The welfare effects of foreign capital inflow and changes in the foreign price and tariff rate of a tariff-ridden imported good are considered for a small country for both 3 times 2 and 3 times 3 trade models with a quota-restricted imported good (whose special case is a nontraded good). For the 3 times 2 model, foreign capital inflow does not affect home welfare when there is no tariff on imports, but it harms the home country if a tariff is imposed on the imports to the extent that the tariff-ridden imported good is more capital intensive than the exported good. On the other hand, for the 3 times 3 model the foreign-capital inflow benefits the home country if the tariff rate is below a certain level under the analogous capital-intensity assumptions. The welfare effects of changes in the foreign price of the tariff-ridden good and its tariff rate remain the same for both models.     

Why Free Trade May Hurt Developing Countries

This paper builds a general equilibrium trade model where a country produces two traded goods and one nontraded public consumption good. The government finances the provision of the public good by taxing the incomes of factors of production, and/or by imposing tariffs. Within this framework, the paper (i) shows that a small tariff or an income tax improves the country's welfare if there is an undersupply of public good, and (ii) identifies the circumstances in which an improvement in the country's terms of trade may reduce its welfare, and free trade can be inferior to autarky. A terms of trade improvement, or the movement from autarky to free trade, definitely improves the country's welfare if the government imposes a tariff that leaves the domestic relative price of the imported good unchanged.     

Privatization in a Small Open Economy with Imperfect Competition

We look at privatization in a general equilibrium model of a small, tariff‐distorted, open economy. There is a differentiated good produced by both private and public sector enterprises. A reduction in government production in order to cut losses from such production raises the returns to capital and increases the tariff revenue, which are welfare‐improving. However, privatization also leads to lower wages and possibly fewer private brands. This lowers workers’ welfare, which may make privatization politically infeasible. Privatization can improve workers’ welfare with complementary reforms, e.g., attracting foreign investment or trade liberalization.     

Stackelberg竞争条件下的最佳福利关税与最大收入关税

文章考察Stackelberg竞争条件下的最佳福利关税与最大收入关税。分析表明,最佳福利关税与最大收入关税的相对大小主要取决于产品之间的相互关系和国内外企业的成本差异。当产品是互补品时,最佳福利关税总是小于最大收入关税;当产品是替代品时,最佳福利关税与最大收入关税的关系,既取决于产品间的替代程度又取决于国内外企业间的成本差异。产品的替代程度较弱时,最大收入关税总是大于最佳福利关税;产品的替代程度较强时,若国内外厂商间的成本差异越小,则最佳福利关税越有可能超过最大收入关税。     

On the Equivalence of Tariffs and Quotas under a Revenue Constraint

This paper sets out a duopolistic model to examine the price and welfare equivalence of tariffs and quotas, given the quota rent is equal to the tariff revenue. It shows that the domestic welfare ranking of the two trade policies crucially depends on the relative costs of the domestic and foreign firms; when the domestic firm's relative costs are lower than those of the foreign firm, a quota regime generally leads to a higher welfare level than that of an equivalent tariff regime. This finding contrasts sharply with the conclusions of Dasgupta and Stiglitz (1977 ), where it was found that a tariff regime always generates higher domestic welfare.     

Trade Policy and Access to Retail Distribution

The paper develops a model in which foreign and domestic manufacturers producing differentiated goods sell through spatially differentiated retailers. There is free entry into retailing but access to the retail distribution network (by manufacturers) may be controlled. The author considers a domestic vertical control mechanism in which domestic retailers carry only domestic brands (termed “domestic dealing”) and compares the use of tariffs on imports and the enforcement of domestic dealing restrictions as means of increasing domestic welfare. It is shown that domestic dealing will always be prohibited when tariffs can be used. When trade policy is not available, however, domestic dealing may be desirable.     

Welfare‐Worsening Aid Flows To Small Countries: The Role of Nontraded Goods

This paper presents the circumstances under which foreign aid can immiserize a small, tariff‐distorted economy, highlighting the role played by the nontraded sector in generating this outcome. An inflow of aid, provided in the form of an increase in the capital stock, can reduce real income of a small, tariff‐distorted economy if: (i) the inflow results in an increase in the price of the nontraded good and the nontraded good and imports are sufficiently strong complements in demand; or (ii) if the inflow leads to a reduction in the price of the nontraded good and the nontraded good and imports are substitutes in demand, provided the degree of substitutability is not too large.     

Tariff,Growth, and Welfare

We develop a two‐country (Home and Foreign) by two‐good (consumption good and investment good) by one factor (capital) endogenous growth model with international knowledge spillover to study the relationship between an import tariff and economic growth and welfare. First, unlike the past literature, we do not need to make an assumption such that the growth rates between countries are identical in a balanced growth path (BGP). Second, we show that there exists a unique and saddle‐point BGP with both countries being incompletely specialized. Third, a higher import tariff on the consumption good in the domestic country may boost (reduce) the rate of economic growth when the foreign (domestic) country has an absolute advantage in the investment good. Finally, a rise in the tariff rate by one country may improve world welfare under some parameter spaces.     

Tariffs and privatization policy in a bilateral trade with corporate social responsibility

Corporate social responsibility (CSR) has become a global business strategy and thus it provides significant welfare implications for designing optimal policies. This paper investigates the impact of CSR on policy interaction between tariffs and privatization in an international bilateral trade model. We find that CSR is closely related to the government's policy decisions on tariffs. In particular, we find that the strategic tariff for increasing domestic welfare is always higher (lower) than the efficient tariff for improving global welfare when the degree of CSR is low (high). We also show that a privatization policy raises tariff and worsens (improves) domestic welfare when the degree of CSR is low (high). Finally, we demonstrate that both countries choose a nationalization policy even though the privatization policy is globally optimal when the degree of CSR is high.     

OPTIMUM-WELFARE AND MAXIMUM-REVENUE TARIFFS UNDER BERTRAND DUOPOLY

This article derives the maximum‐revenue tariff and the optimum‐welfare tariff under Bertrand duopoly with differentiated products. It is shown that both tariffs are lower under Bertrand duopoly than under Cournot duopoly. Also, the optimum‐welfare tariff may exceed the maximum‐revenue tariff under both Bertrand duopoly and Cournot duopoly. This result is more likely the lower the costs of the home firm relative to the costs of the foreign firm, and the greater the degree of product substitutability. Also, it is shown that the optimum‐welfare tariff is less likely to exceed the maximum‐revenue tariff under Bertrand duopoly than under Cournot duopoly.     

Nontraded Goods,Capital Taxes,and Temporary Immigration in a Small Open Economy

This paper extends the standard (one-good, two-factor) model of international capital and labor mobility by incorporating a nontraded good within a small capital-exporting, labor-importing country. It examines, from this country's perspective, the effects of capital taxes and temporary immigration on the nominal wage, and on welfare, and derives the optimal policy toward capital. It demonstrates, among other things, that (i) the optimal policy toward capital may be a tax on its domestic rate of return, depending on the factor intensity of the nontraded good and on the relationship between capital and labor in production, and (ii) the distinction between temporary and permanent immigration is important in evaluating its effects on various economic variables. [F20, F22]     

PUBLIC INVESTMENT,TAX EVASION,AND THE WELFARE EFFECTS OF A TARIFF REFORM

Contrary to the case considered in literature, the experience of developing countries indicates that the tariff reforms have not been revenue neutral due to the heavy dependence of developing countries on trade taxes and pervasive tax evasion. In contrast to the plausibility of a welfare loss shown by the current literature, when the adverse effect of the loss of tariff revenue on public investment is factored in, the welfare outcome of the tariff reforms of past few decades turns out to be much more pessimistic. The constraints imposed by tariff dependence and tax evasion imply that future tariff reforms in these countries should be undertaken after strengthening their domestic tax system and augmenting the ability of their governments to fight tax evasion. For countries of sub‐Saharan Africa, where such reforms are likely to be concentrated, this would need planning and capacity building over a longer time horizon. (JEL D61, D62, F13, H26)     

Smuggling and Bhagwati's Nonequivalence Between Tariffs and Quotas

The authors extend Professor Bhagwati's analysis about the nonequivalence between trade policy instruments when domestic production is monopolized and the terms of trade are endogenous, by allowing for smuggling. They show that the dominance of the ad valorem tariff over the quota is not robust. Tariffication can lower welfare even when the level of illegal imports is quite small. However, tariffication with a specific tariff is always beneficial because the specific tariff dominates the ad valorem tariff and the quota with or without smuggling. Smuggling (or the threat) also tends to lower the second–best tariff/quota, and increases welfare when imports are restricted by a quota, but lowers it under a tariff.     

Can a Regional Trade Agreement Benefit a Nonmember Country without Compensating It?

RTAs are generally formed without any tariff concessions or transfers to nonmember countries. Can such an RTA benefit nonmembers' welfare? In a two‐good three‐country competitive equilibrium model in the absence of an entrepôt, an RTA without concessions to a nonmember will hurt nonmembers' welfare when goods are normal. If one of the member countries is an entrepôt, however, it definitely improves nonmembers' welfare. In a three‐good three‐country model, an RTA without concessions damages the nonmember's welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.     

Revenue‐enhancing Trade Liberalization in a Differentiated Duopoly

Existing studies suggest that in developing countries, tax reforms that increase consumption taxes can compensate for shortfalls in revenue from a tariff reduction. However, these revenue‐enhancing tariff–tax reforms have a critical shortcoming—they generally reduce welfare under imperfect competition. This paper shows that tax reforms such as consumption tax reforms do not necessarily have to be implemented to make up for revenue shortfalls from tariff reductions under imperfect competition, because trade liberalization through tariff cuts leads to an increase in government revenue when domestic and imported goods have a high substitutability. This revenue‐enhancing effect of a tariff reduction occurs for a wider degree of product substitutability when initial tariff and consumption tax rates are high. More importantly, we show that even if initial tariff and consumption tax rates are sufficiently low, a tariff reduction still increases government revenue for a low degree of product differentiation under Bertrand competition.     

Skilled–unskilled wage inequality,nontraded good and endogenous supply of skilled labour: A theoretical analysis

The paper develops a static four sector competitive general equilibrium model of a small open economy in which skilled labour is endogenously produced by the education sector and is mobile between a traded good sector and a nontraded good sector. Capital is also perfectly mobile among the education sector, skilled labour using traded good sector and the nontraded good sector. However, land and unskilled labour are specific to another traded good sector. We analyse the effects of change in different factor endowments and reduction in tariff rate on skilled–unskilled wage inequality. We find that the effect of a change in different parameters on wage inequality depends on the factor intensity ranking between two skilled labour using sectors and on the relative strength of the marginal effects on demand for and supply of nontraded final good. We also analyse the effects of changes in different parameters on the supply of skilled labour.     

Tax Principles and Tariff‐Tax Reforms under International Oligopoly

In a two‐country duopoly model, this paper compares destination‐ and origin‐based commodity taxes adjusted to tariff reductions so that the world price and foreign welfare remain unaltered. We first find that this tariff‐tax reform reduces domestic welfare under the destination principle while the opposite holds under the origin principle. Then, it is shown that this ranking is reversed if exports are taxed. In short, which is preferable between destination and origin taxes depends on the tax principle and which between imports and exports are taxed.