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Interdependence of Trade Policies in General Equilibrium

Author

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  • Mostafa Beshkar

    (Indiana University)

  • Ahmad Lashkaripour

    (Indiana University)

Abstract

We characterize the optimal trade tax/subsidy schedule in generalequilibrium multiple-sector gravity models and find that: ( i ) The optimal tariffs are uniform across sectors, despite sectoral variations in trade elasticities, transport costs and demand characteristics; ( ii ) The optimal export subsidy for a sector is increasing in that sector’s trade elasticity. Moreover, trade policies are interdependent: ( iii ) Import tariffs across sectors are complementary and ( iv ) Import policy is only an imperfect substitute for export policy. These policy interdependencies play an important role in the optimal design of trade agreements and provide a novel perspective on the WTO’s ban on export subsidies. Fitting our model to trade data, we show that these policy interdependencies are also quantitatively significant. Finally, ( v ) non-revenue trade barriers (such as import bans) could be optimal in a subset of sectors.

Suggested Citation

  • Mostafa Beshkar & Ahmad Lashkaripour, 2017. "Interdependence of Trade Policies in General Equilibrium," CAEPR Working Papers 2017-003, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2017003
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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2017-003.pdf
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    Cited by:

    1. Tanapong Potipiti & Wisarut Suwanprasert, 2022. "Why does the WTO treat export subsidies and import tariffs differently?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(4), pages 1137-1172, November.
    2. Pol Antràs & Teresa C. Fort & Agustín Gutiérrez & Felix Tintelnot, 2022. "Trade Policy and Global Sourcing: An Efficiency Rationale for Tariff Escalation," NBER Working Papers 30225, National Bureau of Economic Research, Inc.
    3. Tanapong Potipiti & Wisarut Suwanprasert, 2019. "Why Does the WTO Prohibit Export Subsidies But Not Import Tariffs?," PIER Discussion Papers 119, Puey Ungphakorn Institute for Economic Research.
    4. Giovanni Maggi & Monika Mrázová & J. Peter Neary, 2022. "Choked By Red Tape? The Political Economy Of Wasteful Trade Barriers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 161-188, February.
    5. Colacicco, Rudy, 2024. "Strategic trade policy in general oligopolistic equilibrium: The case of import tariffs," Research in Economics, Elsevier, vol. 78(2).
    6. Bond, Eric W. & Duan, Yuwan & Ji, Ting & Lu, Yi, 2023. "Trade and welfare effects of export tax: Theory and evidence from China's incomplete export VAT rebate," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 542-560.

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