Tariffs and Firm-Level Heterogeneous Fixed Export Costs

Philipp J.H. Schröder; Jan Guldager Jørgensen

Tariffs and Firm-Level Heterogeneous Fixed Export Costs

Philipp J.H. Schröder, Jan Guldager Jørgensen

GlobID -Globalization and Industry Dynamics

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Abstract

This paper presents a two-country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties increases for small tariffs. Firm profits are falling in both tariff and fixed export cost barriers. Tariff revenue falls when fixed export costs increase whereas we have a Laffer curve effect for the tariff. Welfare falls when fixed export costs increase and increases for small tariffs and falls for large tariffs, i.e. there exists a welfare maximizing tariff.

Originalsprog	Engelsk
Tidsskrift	B.E. Journal of Economic Analysis & Policy
Vol/bind	5
Nummer	1
ISSN	1935-1682
Status	Udgivet - 2006

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Citationsformater

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AU - Schröder, Philipp J.H.

AU - Jørgensen, Jan Guldager

PY - 2006

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N2 - This paper presents a two country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties may actually increase for small tariffs. Firm profits fall for both the tariff and the fixed export barrier. Tariff revenue falls for an increase in fixed exporting costs whereas we have a Laffer curve effect for the tariff. Finally, we establish that welfare falls with fixed export costs and large tariffs but increases for small tariffs, i.e. there exist a welfare maximizing tariff.

AB - This paper presents a two country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties may actually increase for small tariffs. Firm profits fall for both the tariff and the fixed export barrier. Tariff revenue falls for an increase in fixed exporting costs whereas we have a Laffer curve effect for the tariff. Finally, we establish that welfare falls with fixed export costs and large tariffs but increases for small tariffs, i.e. there exist a welfare maximizing tariff.

M3 - Journal article

SN - 1935-1682

VL - 5

JO - B.E. Journal of Economic Analysis & Policy

JF - B.E. Journal of Economic Analysis & Policy

IS - 1

ER -

Tariffs and Firm-Level Heterogeneous Fixed Export Costs

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