Optimal tariffs: Should Australia cut automotive tariffs unilaterally?

Peter Dixon, Maureen Rimmer

    Research output: Contribution to journalArticleResearchpeer-review

    14 Citations (Scopus)

    Abstract

    We derive formulas for the optimal tariff rate in four theoretical models. We start with a model in which industries are competitive and then successively allow for: monopoly pricing by export industries, revenue-replacement costs and cold-shower effects. The theoretical formulas accurately explain results from MONASH, a detailed computable general equilibrium model. A critical parameter in determining the optimal tariff is the export-demand elasticity. Modellers are often reluctant to adopt empirically justifiable values for export-demand elasticities because such values generate embarrassingly large optimal tariff rates. A way out of this dilemma is the adoption of a non-linear cold-shower specification.
    Original languageEnglish
    Pages (from-to)143 - 161
    Number of pages19
    JournalEconomic Record
    Volume86
    Issue number273
    DOIs
    Publication statusPublished - 2010

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