The optimal tariff in the presence of trade-induced productivity gains


Hübler, Michael ; Pothen, Frank


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URL: https://ub-madoc.bib.uni-mannheim.de/35277
URN: urn:nbn:de:bsz:180-madoc-352776
Document Type: Working paper
Year of publication: 2013
The title of a journal, publication series: ZEW Discussion Papers
Volume: 13-103
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: F12 , F14 , F17 , O33 , O40,
Keywords (English): Trade , optimal tariff , productivity gains , technology spillovers
Abstract: We scrutinize the impact of international productivity gains (spillovers) induced by imports and exports on optimal tariffs. First, we solve a stylized 2x2 trade model of a large open economy and show that (a) productivity gains via exports and imports both reduce the strategically optimal tariff, (b) there exists a certain strength of productivity gains such that the incentive to manipulate the terms of trade strategically vanishes, (c) the welfare gain that can be achieved via a tariff is lower in the presence of productivity gains than in their absence, and (d) these results even hold without power on international markets. Second, we apply this model to a panel data set covering 40 countries, 29 sectors and the years 1995 to 2009. We find that importdriven productivity gains are stronger than export-driven productivity gains. Third, we extend our 2x2 model to a multi-region, multi-sector model that we calibrate to the data set used in the econometric analysis and to the econometrically estimated productivity gains. Optimal tariffs are reduced by 17% for the US and China and 40% for Brazil when taking trade-induced productivity gains into account. The USA are the only model region that gains from European optimal tariff policy. Thus, trade-induced productivity gains have empirically relevant effects on optimal tariffs.

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Hübler, Michael ; Pothen, Frank (2013) The optimal tariff in the presence of trade-induced productivity gains. Open Access ZEW Discussion Papers Mannheim 13-103 [Working paper]
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