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A Second-best Argument for Low Optimal Tariffs / Lorenzo Caliendo, Robert C. Feenstra, John Romalis, Alan M. Taylor.
- Format:
- Book
- Author/Creator:
- Caliendo, Lorenzo.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w28380.
- NBER working paper series no. w28380
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2021.
- Summary:
- We derive a new formula for the optimal uniform tariff in a small-country, heterogeneous-firm model with roundabout production and a nontraded good. Tariffs are applied on imported intermediate inputs. First-best policy requires that markups on domestic intermediate inputs are offset by subsidies. In a second-best setting where such subsidies are not used, the double- marginalization of domestic markups creates a strong incentive to lower the optimal tariff on imported inputs. In a 186-country quantitative model, the median optimal tariff is 10%, and negative for five countries, as compared to 27% in manufacturing from the one-sector, optimal tariff formula without roundabout production.
- Notes:
- Print version record
- January 2021.
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