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Specific and Ad Valorem Tariffs Are Not Equivalent in Trade Wars

Author

Listed:
  • Lockwood, B.
  • Wong, K.Y.

Abstract

This note argues that when two countries choose optimal tariffs in a trade war, specific tariffs are not equivalent to ad valorem tariffs even if all markets are competitive. In particular, it shows that if a country's trading partener switches a specific tariff to an an valorem tariff that yields the same revenue at the initial trade point, the former country has an incentive to lower its tariffs.

Suggested Citation

  • Lockwood, B. & Wong, K.Y., 1996. "Specific and Ad Valorem Tariffs Are Not Equivalent in Trade Wars," Discussion Papers 9602, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:9602
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    References listed on IDEAS

    as
    1. de Meza, David, 1979. "Commercial Policy Towards Multinational Monopolies-Reservations on Katrak," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 334-337, July.
    2. Edward Tower, 1975. "The Optimum Quota and Retaliation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(4), pages 623-630.
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    Cited by:

    1. Jørgensen, Jan G. & Schröder, Philipp J.H., 2008. "Fixed export cost heterogeneity, trade and welfare," European Economic Review, Elsevier, vol. 52(7), pages 1256-1274, October.
    2. Amrita Dhillon & Myrna Wooders & Ben Zissimos, 2007. "Tax Competition Reconsidered," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 391-423, June.
    3. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    4. Yuya Kikuchi & Toshiki Tamai, 2024. "Unemployment and endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 533-551, April.
    5. Ya‐Po Yang & Qidi Zhang & Leonard F. S. Wang, 2022. "Tariff simplification, privatization, and welfare superiority," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 683-707, May.
    6. Hiroshi Aiura & Hikaru Ogawa, 2019. "Indirect taxes in a cross-border shopping model: a monopolistic competition approach," Journal of Economics, Springer, vol. 128(2), pages 147-175, October.
    7. Jørgensen Jan Guldager & Schröder Philipp J. H., 2006. "Tariffs and Firm-Level Heterogeneous Fixed Export Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-17, July.
    8. Koethenbuerger, Marko, 2014. "Competition for migrants in a federation: Tax or transfer competition?," Journal of Urban Economics, Elsevier, vol. 80(C), pages 110-118.
    9. Haraguchi Junichi & Ogawa Hikaru, 2018. "Leadership in Tax Competition with Fiscal Equalization Transfers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(3), pages 1-15, July.
    10. Jan Jørgensen & Philipp Schröder, 2007. "Effects of Tariffication: Tariffs and Quotas under Monopolistic Competition," Open Economies Review, Springer, vol. 18(4), pages 479-498, September.
    11. Nobuo Akai & Hikaru Ogawa & Yoshitomo Ogawa, 2011. "Endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(5), pages 495-506, October.
    12. Jan G. Jorgensen & Philipp J. H. Schröder, 2002. "Effects of Tariffication: Tariffs, Quotas and VERs under Monopolistic Competition," Discussion Papers of DIW Berlin 269, DIW Berlin, German Institute for Economic Research.
    13. Jan Guldager Jørgensen & Philipp J.H. Schröder, 2011. "Welfare Effects of Tariff Reduction Formulas," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 664-673, September.
    14. Aiura, Hiroshi & Ogawa, Hikaru, 2013. "Unit tax versus ad valorem tax: A tax competition model with cross-border shopping," Journal of Public Economics, Elsevier, vol. 105(C), pages 30-38.
    15. Susanna Thede, 2005. "Trade policy formation when geography matters for specialisation," Working Papers 200519, School of Economics, University College Dublin.
    16. Larue, Bruno & Kotchoni, Rachidi & Pouliot, Sébastien, 2013. "Non-Equivalent Ad Valorem Equivalents and Gravity," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150471, Agricultural and Applied Economics Association.
    17. Susanna Thede, 2005. "Determinants of Bilateral Trade Protection," The World Economy, Wiley Blackwell, vol. 28(3), pages 313-328, March.
    18. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 139-161, September.

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    More about this item

    Keywords

    TRADE POLICY; INTERNATIONAL TRADE;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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