Factor tariffs and income (original) (raw)

The Growth and Welfare Consequences of Differential Tariffs

International Economic Review, 1993

This paper analyzes the impact of differential tariffs on consumption and investment in a specific factors model of a small open economy in which capital is accumulated over time. Particular attention is devoted to the welfare aspects, highlighting the cost of the intertemporal distortions produced by protective trade policies. Several specific welfare propositions are obtained. Fist, tariff protection is shown to create short-run beneftts but long-run costs in welfare. Secondly, the second-best policy for the two tariffs is characterized. Finally, several propositions summarizing the implications of our analysis for tariff reform are derived.

Import tariffs and growth in a small open economy

Journal of Public Economics, 1996

In this paper we study the relationship between tariff structure, growth and welfare for a small, open country with endogenous growth induced by human capital accumulation. Using a model with trade in consumption and two investment goods, we consider the short-and long-run effects of a permanent unanticipated increase in the tariff rates under different replacement regimes, i.e. lump-sum transfer or investment tax credit. We show that most tariffs reduce growth, even in the short run. Also, all tariffs are welfare-reducing in the long run, but some may improve welfare in the short run. We find that, in general, differential tariffs are welfareoptimal. Starting from a uniform tariff structure, a revenue-neutral tariff reform may, therefore, increase growth and welfare in the long run. The structure of the optimal differential tariff varies, however, depending on the replacement regime.

The Possibility of Welfare Gains with Capital Inflows in a Small Tariff-Ridden Economy

1997

Capital inflows with full repatriation give rise to welfare improvement possibilities in a small tariff-distorted economy when imperfect competition and increasing returns are allowed for in one sector of a two-sector model. This is in contrast to the Brecher-Alejandro proposition that capital inflows with full repatriation are necessarily immiserizing for a small tariff-ridden economy. We find that welfare gains chances are greater (a) the higher the expenditure share of the capital-intensive differentiated good; (b) the lower the substitutability between brands; and (c) the lower the share of tariff revenue in national income.

Differential tariffs, growth, and welfare in a small open economy

Journal of Development Economics, 2000

This paper analyzes the effects of consumption and investment tarrifs on growth and welfare. With endogenous laber supply, consumption tariffs are not growth-neutral. Instead, an increase in either tariff reduces both the short-run growth rates of key economic variables such as GDP, consumption, and foreign debt, and their common long-run equilibrium growth rate. Numerical simulations suggest that the investment tariff has a more adverse effect on growth rates and welfare than does a comparable consumption tariff. Accordingly, a revenue-neutral substitution of a consumption tariff for an investment tariff is both growth-enhancing and welfare-improving. The second-best and first-best optimal tariffs are characterized and shown to involve the heavy subsidization of investment. q S.J. Turnovsky . 1 Tel.:q1-206-685-8028; fax: q1-206-685-7477. 0304-3878r00r$ -see front matter q 2000 Elsevier Science B.V. All rights reserved. Ž . PII: S 0 3 0 4 -3 8 7 8 0 0 0 0 0 8 7 -0 ( ) T. Osang, S.

Trade Policy and Factor Prices: An Empirical Strategy

2005

This paper presents a new empirical strategy for estimating the effects of trade policy on domestic factor prices when policy endogeneity is suspected. Absent income effects on factor supplies or domestic prices, the coefficient on the terms of trade can provide an unbiased estimator of the effect of trade barriers on the factor distribution of income for a small economy. In the more general case where income effects are allowed for, we provide a means to quantify and control for the possible bias. We implement our strategy on a cross-national data set of trade policies and income shares of capital and labor. We find little evidence of the existence of Stolper-Samuelson effects, both for the sample as a whole as well as within cones of diversification. Consistent with a model of wage bargaining, we find that the effect of openness on capital shares is greater for countries with higher unionization rates.

On the Output Effects of Barriers to Trade

International Economic Review, 2006

We study the macroeconomic effects of international trade policy by integrating a Hecksher-Ohlin trade model into an optimal-growth framework. The model predicts that a more open economy will have higher factor productivity. Furthermore, there is a "selective development trap" to which countries may or may not converge, depending on policy. Income at the development trap falls as trade barriers increase. Hence, crosscountry differences in barriers to trade may help explain the dispersion of per capita income observed across countries. The effects are quantified, and we show that protectionism can explain a relevant fraction of TFP and long-run income differentials across countries.

The possibility of welfare gains with capital inflows in a small tariff-distorted economy

Economica, 1997

Capital inflows with full repatriation give rise to welfare improvement possibilities in a small tariff-distorted economy when imperfect competition and increasing returns are allowed for in one sector of a two-sector model. This is in contrast to the Brecher-Alejandro proposition that capital inflows with full repatriation are necessarily immiserizing for a small tariff-ridden economy. We find that welfare gains chances are greater (a) the higher the expenditure share of the capital-intensive differentiated good; (b) the lower the substitutability between brands; and (c) the lower the share of tariff revenue in national income.

Factor taxes in open economies with unemployment

We analyze the eects of factor taxes in a standard 2x2x2 model of international trade with internationally immobile factors, modified to allow for involuntary unem- ployment. Factor taxes that increase employment are shown to be potentially welfare reducing in the open economy due to an induced negative terms of trade eect - a case that we label "induced immiserising growth". In this case, there exists the potential for welfare increasing international coordination of factor taxes. JEL-Classification: F11, F16

Implications of Trade Policies in Segmented Factor Markets—A General Equilibrium Approach

Theoretical Economics Letters

This paper, using a three sector full-employment general equilibrium model with segmented domestic factor markets, explains how and under what conditions a policy of import restriction using tariffs can be beneficial for a small, open economy compared to the import liberalisation policy, contrary to the conventional results. Also, inflows of foreign-owned capital to an export sector within the economy's export processing zone coupled with labour-augmenting type technology transfer, with protected importcompeting sector, can improve national income, even without any distortion in the formal sector labour market. This simple application of competitive trade models establishes the fact that trade restrictions can promote growth and attract FDI for the developing countries, even when foreign capital enters one specific export sector of the economy.