Welfare effects of unilateral changes in tariffs: the case of Motor vehicles and parts in Australia

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Dixon, Peter and Rimmer, Maureen T (2008) Welfare effects of unilateral changes in tariffs: the case of Motor vehicles and parts in Australia. Working Paper. Centre of Policy Studies (CoPS).

Abstract

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 CGE 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.

Additional Information

CoPS/IMPACT Working Paper Number G-177

Item type Monograph (Working Paper)
URI https://vuir.vu.edu.au/id/eprint/29408
Official URL http://www.copsmodels.com/elecpapr/g-177.htm
ISBN 0732615844
Subjects Historical > FOR Classification > 1402 Applied Economics
Current > Division/Research > Centre of Policy Studies (CoPS)
Keywords F13; F14; C68; optimal tariff; export-demand elasticities; cold-shower effect; monopoly pricing; revenue-replacement costs
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