Optimal Tariffs: Should Australia Cut Automotive Tariffs Unilaterally?

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Dixon, Peter and Rimmer, Maureen T (2009) Optimal Tariffs: Should Australia Cut Automotive Tariffs Unilaterally? Economic Record, 86 (273). pp. 143-161. ISSN 1475-4932


We derive formulas for the optimal tariff rate in four theoretical models. We start with a model in which industries are competitive and then successively allow for: monopoly pricing by export industries, revenue-replacement costs and cold-shower effects. The theoretical formulas accurately explain results from MONASH, a detailed computable general equilibrium model. A critical parameter in determining the optimal tariff is the export-demand elasticity. Modellers are often reluctant to adopt empirically justifiable values for export-demand elasticities because such values generate embarrassingly large optimal tariff rates. A way out of this dilemma is the adoption of a non-linear cold-shower specification.

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Item type Article
URI https://vuir.vu.edu.au/id/eprint/24665
DOI 10.1111/j.1475-4932.2009.00599.x
Official URL http://onlinelibrary.wiley.com/doi/10.1111/j.1475-...
Subjects Historical > FOR Classification > 1402 Applied Economics
Historical > FOR Classification > 1502 Banking, Finance and Investment
Historical > Faculty/School/Research Centre/Department > College of Business
Current > Division/Research > Centre of Policy Studies (CoPS)
Keywords optimal tariff, tariff cuts, GE modelling, Australia, trade
Citations in Scopus 16 - View on Scopus
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