Title: A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade
Abstract: This paper uses Krugman's (1980) model of trade with product differentiation and monopolistic competition to examine the effects of a uniform ad valorem tariff. The main results are: there exists an optimal tariff, even for a small economy, and the optimal tariff rate is an increasing function of the size of the economy and the degree of production differentiation. Under reasonable parameter assumptions a tariff war between two countries of equal size in which each country retaliates by imposing its own optimal tariff causes a welfare loss equivalent to a drop in income of about 4 percent.
Publication Year: 1987
Publication Date: 1987-11-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 189
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