Welfare‐ranking ad valorem and specific tariffs under monopolistic competition

Abstract

Actual trade and tariff policy prefers ad valorem tariffs to specific tariffs. Yet in this paper we show that, in a setting of monopolistic competition, realizing a given restriction on imports via a specific tariff would generate more consumer utility than obtaining the same restriction via an ad valorem tariff. JEL classification: F12Un classement en terme de bien-eˆtre des droits de douane ad valorem et spe´cifiques quand on est en re´gime de concurrence monopolistique. Les politiques commerciales en vigueur pre´fe`rent les droits de douane ad valorem aux droits de douane spe´cifiques. Or ce me´moire montre que, dans un contexte de concurrence monopolistique, re´duire les importations par le truchement d'un droit de douane spe´cifique ge´ne`re plus d'utiliteṕ our le consommateur que les meˆmes restrictions obtenues par le truchement d'un droit de douane ad valorem.

Unit tax versus ad valorem tax: A tax competition model with cross-border shopping

“…The choice of tax method was also examined in a tariff war model by Jorgensen and Schröder (2005) and Lockwood and Wong (2000).…”

Fixed export cost heterogeneity, trade and welfare

“…models, bilateral tariffs are usually welfare-reducing, e.g. Gros (1987), Jørgensen and Schröder (2005).…”

Hub and spoke trade agreements under oligopoly with asymmetric costs

“…7 It is important to note from the literature on trade policy under imperfect competition that results are highly sensitive to the choice and functional form of policy instruments. For example, as shown by Brander and Spencer (1984), and further discussed by Jørgensen and Schröder (2005), whether the policy is ad-valorem or speci…c could matter even for the sign of welfare improving intervention.…”