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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. 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.
    3. 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.
    4. Koethenbuerger, Marko, 2014. "Competition for migrants in a federation: Tax or transfer competition?," Journal of Urban Economics, Elsevier, vol. 80(C), pages 110-118.
    5. 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.
    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. 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.
    8. 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.
    9. 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.
    10. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
    17. Susanna Thede, 2005. "Trade policy formation when geography matters for specialisation," Working Papers 200519, School of Economics, University College Dublin.
    18. Susanna Thede, 2005. "Determinants of Bilateral Trade Protection," The World Economy, Wiley Blackwell, vol. 28(3), pages 313-328, March.

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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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