Abstract
WTO negotiations rely on tariff reduction formulas. It has been argued that formula approaches are of increasing importance in trade talks, because of the large number of countries involved, the wider dispersion in initial tariffs (e.g. tariff peaks) and gaps between bound and applied tariff rates. This paper presents a two country intra-industry trade model with heterogeneous firms subject to high and low tariffs. We examine the welfare effects of applying three different tariff reduction formulas proposed in the literature i) a proportional cut, ii) the Swiss formula and iii) a compression formula. No single formula dominates for all conditions. The ranking of the three tools depends on the degree of product differentiation in the industry, and the achieved reduction in the average tariff.
| Translated title of the contribution | Welfare Effects of Tariff Reduction Formulas |
|---|---|
| Original language | English |
| Place of publication | Odense |
| Publisher | Department of Economics, University of Southern Denmark |
| Pages | 1-17 |
| Number of pages | 17 |
| Publication status | Published - 2005 |