"Specific and Ad Valorem
Tariffs are not Equivalent in Trade Wars"
forthcoming in Journal of International Economics
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This note argues that when
two countries choose optimal tariffs in a trade war,
specific tariffs are not equivalent to ad valorem tariffs
even if all markets are competitive. In particular, it
shows that if a country's trading partner switches from a
specific tariff to an ad valorem tariff that yields the
same revenue at the initial trade point, the former
country has an incentive to lower its tariff. When two
identical countries choose the types and magnitudes of
tariffs in a two-stage game, they will choose ad valorem
tariffs, making the trade war less severe.
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This page was last revised on January 24, 2000.