Working Paper: NBER ID: w10730
Authors: James E. Anderson; J. Peter Neary
Abstract: We show that the effects of tariff changes on welfare and import volume can be fully characterized by their effects on the generalized mean and variance of the tariff distribution. Using these tools, we derive new results for welfare- and market-access-improving tariff changes, which imply two 'cones of liberalization' in price space. Because welfare is negatively but import volume positively related to the generalized variance, the cones do not intersect, which poses a dilemma for trade policy reform. Finally, we show that generalized and trade-weighted moments are mutually proportional when the trade expenditure function is CES.
Keywords: Tariff Reform; Welfare; Market Access
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tariff reduction (F13) | domestic welfare (I38) |
| tariff reduction (F13) | foreign market access (F23) |
| generalized variance of tariffs (F11) | domestic welfare (I38) |
| generalized variance of tariffs (F11) | import volume (A30) |
| tariff changes (F13) | welfare (I38) |
| tariff changes (F13) | market access (L17) |
| generalized moments of tariffs (F16) | welfare (I38) |
| generalized moments of tariffs (F16) | market access (L17) |