Redistribution,state trading enterprises and ‘politically optimal’ tariffs

State trading enterprises (STEs) are widely used and can be viewed as instruments of trade policy. We analyse two aspects: the first is their potential trade distorting effect; the second is how they modify the case for the ‘politically optimal’ tariff. We show that the STE can reduce the need for a tariff designed for domestic redistribution. This result introduces some ambiguity about how STEs are interpreted: from a multilateralist perspective, they should be dealt with in the same way as other non‐tariff barriers; from a nationalistic perspective, they can reduce the need for ‘politically optimal.’     

Politically realistic objective functions and trade policy PROFs and tariffs

This paper demonstrates a mathematical correspondence between the deus ex machina tariff formation approach and political economy approach. The correspondence implies that the tariff chosen by lobbying-influenced policy makers will be equivalent to a tariff chosen by a deus ex machina government that gives ‘too much’ weight to profits. This result allows many political economy issues to be addressed in the simple framework of a deus ex machina government which faces a politically realistic objective function (PROF).     

On the redistributive effects of Germany’s feed-in tariff

This article assesses the redistributive effects of a key element of German climate policy, the promotion of renewables in the electricity generation mix through the provision of a feed-in tariff. The tariff shapes the distribution of households’ disposable incomes by charging a levy that is proportional to household electricity consumption and by transferring financial resources to households who are feeding green electricity into the public grid. Our study builds on representative household survey data, providing information on various socio-demographics, household electricity consumption, and ownership of photovoltaic facilities. The redistributive effects of the feed-in tariff are evaluated by means of inequality indices. All the indices indicate that Germany’s feed-in tariff is regressive.     

Shifting Armington trade preferences: A re-examination of the Mercosur–EU negotiations

This paper examines the ‘small share’ problem inherent within the constant elasticity of substitution Armington specification. As a de facto research tool in the quantitative trade literature, this structural bias plagues the results of numerous multi-region CGE studies. Kuiper and van Tongeren (2006) proposed a fusion of gravity and CGE specifications to remedy said bias, which the current paper further develops. With a pervasiveness of ‘small-share’ examples on Mercosur–European Union trade owing to the latter's restrictive tariff regime, the results reveal that significant additional trade led gains to Mercosur under a potential preferential trade agreement when compared with the standard Armington treatment.     

Economic integration in an uneven world: an internationalist perspective

This paper discusses two progressive schools of thought that have evolved in response to international neoliberalism and the consequent competitive pressures in global markets emanating from the low-cost conditions obtained in many less developed countries. The paper identifies these as the ‘competitiveness-enhancing’ and the ‘competition-reducing’ approaches. The former is shown to be ill-suited to present circumstances of the global economy and, in any event, nationalist. The latter seeks to minimize the adverse consequences of international neoliberalism, and comprises proposals for expansive social charters and social tariffs. The paper provides a theoretical basis for this approach, and discusses the strengths and weaknesses of each of these proposals. The paper then develops and defends a new multilateral, rule-based trade proposal, called the ‘social index tariff structure’ (SITS), which would reward nations for high levels of development achieved relative to their economic means. Drawing on human development data from the Human Development Report (1993), a SITS-based trading scheme is developed for 77 countries. It is argued that a SITS regime would serve to protect the quality of life in developed countries while promoting human development in the less developed countries. The SITS proposal is assessed against Amartya Sen's ‘capabilities to achieve functionings’ approach to human development.     

When does tiered wholesale pricing create an incentive to reduce retail prices?

Wholesale ‘ladder pricing’ involves setting the wholesale price retailers face as a nonlinear (generally increasing) function of price chosen by retailers. This form of wholesale pricing occurred recently in UK Telecoms, and the issue became extensively debated in the law courts. A major concern in deciding the merits of the case lay with the question of whether or not the introduction of tiered wholesale pricing created incentives for retailers to actually reduce their prices. This paper examines the incentive for the case where the wholesale tariff is a non-linear continuous differentiable function. It is shown that so long as the tariff is strictly increasing, convex, and positive only for retail prices greater than the maximum retailer marginal cost, then there is indeed an incentive to reduce price, whatever the actual gradient of the tariff schedule.     

A general equilibrium evaluation of the fiscal costs of trade liberalization in Ukraine

The establishment of an Association Agreement/Deep and Comprehensive Free Trade Agreement (AA/DCFTA) with the European Union (EU) would be the next significant step towards Ukraine’s deeper integration into the world economy. Despite widely expected additional welfare gains, the signing of the AA/DCFTA at the Third Eastern Partnership summit in November 2013 in Vilnius was suspended by the Ukrainian government due to geopolitical concerns and a severe economic and financial crisis in Ukraine coming along with high external debt and a substantial public budget deficit. This puts the fiscal consequences of Ukraine’s continued liberalization into focus, as transition and developing countries face higher fiscal costs associated with trade integration. Accordingly, this paper contributes to the literature by analyzing the part of the potential EU-Ukraine DCFTA which leads to a loss of tariff revenues, namely the tariff elimination. In particular, we apply a static Computable General Equilibrium (CGE) model for the single small open economy of Ukraine and focus on the effects of Ukraine’s unilateral tariff elimination by simulating three scenarios reflecting different means to compensate for the loss of tariff revenues. It turns out to be important to take these costs into consideration while modeling trade liberalization, as the results vary significantly across the scenarios.     

TARIFF POLICY AND WELFARE IN AN INTERNATIONAL DUOPOLY WITH CONSUMER‐FRIENDLY INITIATIVE

The purpose of this paper is to explore how strategic tariff policy and welfare are affected by the consumer‐friendly initiative of foreign exporting firms. We define a firm that is consumer‐friendly or non‐profit‐based if it considers both its own profit and consumer surplus. This paper extends Brander and Spencer by taking the consideration of consumer‐friendly firms into an international duopoly, and within such context examining the tariff policy and welfare. The consumer‐friendly initiative that leads to trade liberalization is a ‘Win‐Win‐Win’ solution in the sense that it is not only beneficial for foreign exporting firms, but also for the government and consumers of the importing country.     

The Modus Operandi of Protection*

The theory of (tariff and exchange-rate) protection usually assumes that imports and domestic substitutes sell at the same price and that exceptions to the ‘law of one price’ are due to imperfect substitutability. This article discusses the implications for the modus operandi of protection of the divergence between the prices of imports and of their domestic substitutes. It argues that the extent of this divergence will depend on imperfect price flexibility as well as imperfect substitutability. Whereas under ‘flex-price’ conditions, protection in the first instance merely redistributes income and changes market shares, output and employment only with a lag, protection under ‘fix-price’ conditions immediately affects market shares and (subject to inventory changes) output and employment.     

Reducing tariff evasion: The role of trade facilitation

Can simplifying customs procedures reduce tariff evasion? We measure tariff evasion as the mis-representation of import values in response to increasing tariffs. In a dataset covering 121 countries and the whole set of HS6 product categories in 2012, 2015, and 2017, we show that simplifying border procedures, that is trade facilitation, reduces tariff evasion. Holding tariff rate constant at its mean, improving a country’s overall trade facilitation performance from the 25th percentile to the median reduces tariff evasion by almost 20%. The moderating effect is especially due to improving the pre-shipment legal certainty of customs procedures. Among the potential mechanisms, improving trade facilitation performance is effective in reducing tariff evasion due to under-reporting of import prices, as well as in countries with weaker control of corruption. The results suggest that countries can gradually implement trade facilitation reforms to cost-effectively minimize tariff evasion.     

PROTECTION BY TARIFF BARRIERS AND INTERNATIONAL TRANSACTION COSTS

Using estimates of protection in the EU market against US exports, this paper illustrates the relative importance of natural and policy sources of protection and the measurement errors induced in the measurement of effective protection by omitting transactions costs. It also considers protection in the EU ‘domestic’ and export market, and the implications of the elimination of tariff barriers only on relative rates of protection in ‘domestic’ and export markets.     

Determinants of U.S. direct investment in the E.E.C.: Revisited

This paper expands upon an earlier work in this Review concerning the specification of a model to identify the determinants of U.S. direct foreign investment (DFI) in the E.E.C. Compared to earlier studies, a longer data series is used, an improved tariff discrimination proxy is employed, and ‘predicted sales’ are estimated and used as the output variable in the empirical work. A variable to capture the effect of the U.S. capital control programs is also included. The findings reaffirm the importance of market size, especially in the plant and equipment equations, as being an important determinant of DFI. Strong support was also found for the growth hypothesis. Consistent statistical support was found for the tariff discrimination hypothesis. In addition, the findings imply that a variable to capture the effects of fluctuating exchange rates should be included in future studies.     

Disneyland monopoly,interlinkage and usurious interest rates

Interlinkage between labour and credit markets is interpreted as a consequence of a monopolistic moneylender's attempt to extract consumer's surplus from the borrower by levying a two-part tariff. This analogy enables us to draw on the literature on non-linear pricing to high- light issues in agrarian structure. The consequence of policy interventions, like taxes and minimum wage legislation, is studied. It is shown that the moneylender will charge ‘usurious’ interest rates if wages are rigid downwards or there is a tax on agricultural income or borrowers have heterogeneous preferences. Some geometry for analysing interlinkage is developed and used for deriving some of the results.     

An empirical approach to distributive justice

This paper starts from the idea that it would be interesting to complement the deductive reasoning about economic justice with an empirical approach which tries to describe and interpret the actual value judgements held by the economic agents. We present results from a pilot study with 180 subjects. Factor analysis indicates that it makes sense to work with desert and compensation criteria, as most economists and philosophers do. We then illustrate that it is possible to operationalise equity judgements, estimating for each subject separately an equation describing his perception of the equitable compensatory income variation. We use the factor analysis results to construct a ‘compensation’ and a ‘desert’ index. All coefficients can be nicely interpreted and interesting patterns of interindividual variation emerge.     

Choosing between multiple regional trade agreements: Evidence from Japan’s imports

Mega‐regional trade agreements (RTAs) are likely to overlap with other RTAs. When such overlaps occur, firms must choose the tariff rates from multiple RTAs. By employing data on Japan’s imports by tariff schemes, we investigate how RTA tariff rates affect firms’ decisions on tariff schemes when multiple RTAs exist. Our finding is that RTA utilization rates are higher when tariff rates for that RTA are lower (own effect) and tariff rates for alternative RTAs are higher (cross effect). We also found that the absolute magnitudes of own and cross effects are larger in bilateral and multilateral RTAs, respectively.     

Has the ‘franc fort’ exchange rate policy affected the inflationary dynamics? Theory and new evidence

Abstract

This paper examines the impact of the ‘franc fort’ policy implemented in France from 1983 on the inflationary dynamics by means of a square root Kalman filter approach. An interesting aspect of the analysis is the evidence that the ‘franc fort’ exchange rate policy had a significant impact on the inflationary dynamics in France through its credibility effects. These results confirm the imported credibility hypothesis according to which the French authorities accelerated the disinflation process by importing the German monetary policy credibility through the ‘hard peg’ of the franc–DM exchange rate. These findings show that inflation dynamics in France began to converge significantly to that in Germany after the implementation of the ‘franc fort’ policy, making more credible the plan for the final transition to the euro. Moreover, this analysis may also reveal much about the nature of potential success of the current initiative of the new member countries now in the process of joining the EU and looking eventually to adopt the euro.     

Tariff induced licensing contracts,consumers’ surplus and welfare

We construct a duopolistic trade model with technology transfer and consider two-part tariff licensing contracts. We show that a tariff on foreign products can influence the licensing strategy of the foreign firm. There is a trade-off between a tariff and a royalty license in affecting the product price. We show in particular that a tariff can be chosen so as to induce fee licensing and maximize both consumers’ surplus and domestic welfare. This resolves the so-called conflict between these two objectives in respect of the choice of a tariff. The paper provides a number of testable hypothesis.     

Shipping the good fish out? An empirical study on the EU seafood imports under the EU’s Generalized System of Preferences

The impact of the EU (European Union) Generalized System of Preference (GSP) on the relative EU’s demand for seafood quality was evaluated in the study. We first explored the theoretical Alchian–Allen result of change in ad valorem tariffs in an n–good world, and then tested this result in the empirical study. The theoretical analysis suggests that whether a reduced ad valorem tariff in an n–good case raises the relative demand for high-value goods depends not only on the substitutability between high-value and low-value goods but also on the substitutability between these similar goods with their weak substitutes. In the empirical sections, we first estimated the elasticities of the substitutions and then used these elasticities to evaluate the quality composition of the EU’s seafood imports from the beneficiary countries. The empirical results in general confirm the occurrence of ‘shipping the good fish out’ due to the reduced tariff rates under the EU’s GSP arrangements.     

Electricity Tariff Changes and Consumer Sentiment on Household Consumption Expenditure in Malaysia

Purpose

This study investigates the impact of the current electricity tariff, represented by optimized tariff calculation, on Malaysian household’s consumption across different levels of income.

Design/methodology/approach

The input-output (IO) model has vastly been used in many energy economics literature that presented the matrix of production between various sectors in an economy. This study aggregated the 124 subsectors in IO Price Table 2015 into 12 groups of consumption of goods and services based on Household Expenditure Survey 2019 (HES 2019) to meet the study’ objectives.

Findings

This study found that in all simulations, high-income earners would be highly affected by the tariff changes. The lower the increment level in electricity tariff rate, the lower the magnitude would be on the changes of household expenditure level.

Research limitations/implications

Optimization in electricity tariff consumptions can pattern the Malaysian household’s consumption across different levels of income efficiently.

Practical implications

Useful to all consumer in the Malaysia economic business sector to predict their energy consumption up to optimum level.

Social implications

The study’s findings can benefit the society in optimiza their electricity consumption since everyone requires the energy for basic needs in their life.

     

Value,Distribution and Capital: A review essay

This article identifies two possible alternative approaches to questions of exchange rate policy within a broadly keynesian frame work. One argument is that the implementation of keynesian’ policies in single jurisdiction requires a ‘managed’ or ‘dirty’ float, while the other would stress the benefits of a greater degree of nominal exchange rate stability as a means of reducing uncertainty and the volatility of expectations. We argue in favour of the former, on the grounds that it will not be possible to pursue a lsquo;cheap money’ policy to reduce real interest rates in a single jurisdiction unless there is some room to manoeuvre on exchange rates. A ‘fixed but adjustable’ exchange rate regime is less attractive because of the potential for deflationary bias in a hegemonic system with fixed exchange rates. Also, the politicization of exchange rate policy in such an environment makes necessary adjustments, particularly in a reflationary direction, more difficult than they otherwise would be. The recent history of the ERM in Europe provides examples of both phenomena.