Optimal inch

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In foreign trade theory , the optimal tariff denotes a tariff rate which leads to welfare gains for a relatively large country. The condition for the existence of such a usually low tariff rate is the possibility of the home country to influence the world market price of a good effectively through its domestic demand , that is: The demand curve abroad must not be completely elastic. The country in question must therefore be able to change the terms of trade for a good.

Mechanism of action

If the demand of a large economy for certain imports falls due to the imposition of an import duty, the world market prices for these goods will fall (Corden 1984). The optimal tariff tries to exploit this price effect. If the demand for an imported good is reduced by the imposition of a tariff (since the good becomes more expensive domestically), the world market price of the good falls and the terms of trade of the importing country improve. For a given number of goods exported, the country can now import more goods than before.

On the one hand, domestic production is boosted by the tariff effect, as suppliers who produce more cheaply can be effectively excluded from the market by means of an import duty, which increases the domestic producer surplus. On the other hand, welfare losses arise in the form of a falling consumer surplus due to the falling total amount of goods traded.

Due to the influence on the world market and thus on the terms of trade, which is decisive for trade, the world market price is now falling, as the domestic market receives an increasing share from its own production and has less demand on the world market. Duty is added to the domestic price.

The terms of trade change, the world market price of the good falls and part of the tariff effect is shifted abroad. The income from the tariff collection exceeds the net welfare loss in the country, which arises in the form of the loss of consumer surplus achieved with free trade .

The welfare loss of the entire world always amounts to the Harberger triangle .

objection

Game theory approaches show that, in a game with more than one period, reactions from abroad can be observed that destroy the domestic welfare gains. For its part, foreign countries can set up tariff barriers for other goods and thus induce welfare losses for the domestic economy .

literature

  • Peter Doubt, Robert Heller: International trade ( online ).
  • Paul Krugman, Maurice Obstfeld: International Economy - Theory and Politics of Foreign Trade . Pearson Studium, Munich 2004, pp. 105 ff., ISBN 3-8273-7081-7 .