Are Uniform Tariffs Optimal?

April 1, 2004

Preview Citation

Format: Chicago

Mary Amiti. Are Uniform Tariffs Optimal?, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes whether uniform tariffs give rise to the highest welfare compared with tariffs that either escalate or de-escalate along the value chain of production. We show that countries may be better off with de-escalating tariffs where tariff rates are higher on intermediate inputs and lower on final goods. The key point is that higher tariffs can encourage agglomeration of intermediate input suppliers and final goods producers in one country. With high tariffs on intermediate inputs, the benefits of close proximity to final goods producers may outweigh the benefits of locating according to comparative advantage, which is more likely when the share of intermediate inputs in producing final goods is high. De-escalating tariffs yield the highest welfare when the benefits of agglomeration are very high. These benefits of agglomeration accrue to both countries in the form of lower prices.

Subject: Commodity markets, Economic sectors, Financial markets, Labor, Manufacturing, Revenue administration, Tariffs, Taxes, Trade facilitation

Keywords: Agglomeration, Commodity markets, Downstream firm, Downstream firms, Final goods, Goods highlight, Manufacturing, Tariff rate, Tariffs, Trade facilitation, Trade liberalization, Upstream firm, Upstream firms, Vertical ilinks, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/072
Stock No:

WPIEA0722004
ISBN:

9781451849370
ISSN:

1018-5941

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