Tariff strategies and small open economies

Raimondos-Møller, Pascalis & Woodland, A. D. (2000) Tariff strategies and small open economies. Canadian Journal of Economics, 33(1), pp. 25-40.

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In this paper we examine the issue of optimal tariffs for a small economy that trades with a large economy. We define ‘small’ and ‘large’ in the sense that the world prices are determined solely by the large country, and, therefore, the small country faces exogenously given world prices. Within this framework it is shown that there exist situations in which the small country has an incentive to behave as a Stackelberg leader by committing itself to a non-zero optimal tariff. Although the small country is unable to directly affect world prices, by pre-committing to a non-zero trade tax it may induce a reduction of the large country's optimal trade tax, thereby indirectly improving its terms of trade and welfare. JEL Classification: F13, F35

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4 citations in Scopus
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3 citations in Web of Science®

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ID Code: 94037
Item Type: Journal Article
Refereed: Yes
ISSN: 0008-4085
Copyright Owner: Copyright 2000 Wiley-Blackwell Publishing, Inc.
Deposited On: 22 Mar 2016 04:19
Last Modified: 22 Mar 2016 04:23

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