DP38 Customs Union, Tariff Reform and Trade in Differentiated Products

Author(s):	Anthony Venables
Publication Date:	January 1985
Keyword(s):	Customs Union, Differentiated Products, Monopolistic Competition, Tariffs, Tax Policy
JEL(s):	321, 422
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=38

The paper analyses tax and tariff policy for trade between economies which each contain a monopolistically competitive industry producing differentiated products. The consequences of tax changes by a single country are examined, and the general desirability of taxing imports more heavily than domestically produced goods is established. Customs union theory is analysed by studying coordinated tax changes by a group of countries; circumstances under which customs union formation and enlargement will benefit members are found. Game theoretic techniques are used to investigate which countries will coalesce into a customs union.