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A dynamic model for an optimal specific import tariff

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The existing literature on optimal specific import tariff only compares the pre- and the post-tariff market equilibriums to account for the efficiency losses. However, when the government imposes a tariff, it affects the import quantity, hence pushing the market out of equilibrium. The supply and the demand of the commodity on which a tariff is imposed then adjust over time to bring the new equilibrium. This article develops a dynamic model and derives an optimal specific import tariff path minimizing the efficiency losses during the adjustment process as well as the post-tariff equilibrium subject to a tariff revenue constraint.
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Keywords: Dynamic efficiency; equilibrium; price adjustment path; specific import tariff path; tariff revenue

Document Type: Research Article

Affiliations: Department of Economics, Michigan State University, East Lansing, Michigan, USA

Publication date: May 4, 2019

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