Discussion Paper Details

Please find the details for DP5540 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Optimal Tariffs: The Evidence

Author(s): Christian Broda, Nuno Limão and David E. Weinstein

Publication Date: March 2006

Keyword(s): GATT, international trade, optimal tariffs, trade policy and WTO

Programme Area(s): International Trade and Regional Economics

Abstract: The theoretical debate over whether countries can and should set tariffs in response to export elasticities goes back over a century to the writings of Edgeworth (1894) and Bickerdike (1907). Despite the optimal tariff argument's centrality in debates over trade policy, there exists no evidence about whether countries actually apply it when setting tariffs. We estimate disaggregate export elasticities and find evidence that countries that are not members of the World Trade Organization systematically set higher tariffs on goods that are supplied inelastically. The result is robust to the inclusion of political economy variables and a variety of model specifications. Moreover, we find that countries with higher aggregate market power have on average higher tariffs. In short, we find strong evidence in favour of the optimal tariff argument.

For full details and related downloads, please visit:

Bibliographic Reference

Broda, C, Limão, N and Weinstein, D. 2006. 'Optimal Tariffs: The Evidence'. London, Centre for Economic Policy Research.