Events

Prof. Robert C. Feenstra
Department of Economics
University of California, Davis

We derive a new formula for the optimal uniform tariff in a small-country, heterogeneous-firm model with roundabout production and a nontraded good. Tariffs are applied on imported intermediate inputs. First-best policy requires that markups on domestic intermediate inputs are offset by subsidies. In a second-best setting where such subsidies are not used, the double-marginalization of domestic markups creates a strong incentive to lower the optimal tariff on imported inputs. In a 186-country quantitative model, the median optimal tariff is 10%, and negative for five countries, as compared to 27% in manufacturing from the one-sector, optimal tariff formula without roundabout production.

This is a joint seminar organized by HKU, CUHK, City U, HKUST and Lingnan U.

Please contact Xiameng PAN at xmpan@connect.hku.hk for registration.