CoPS/IMPACT Working Paper Number OP-88

Title: Should Tariff Reductions be Announced? An Intertemporal Computable General Equilibrium Analysis

Author: Michael Malakellis


In this paper the macro and structural implications of three alternative tariff-reduction strategies are examined. Under the first strategy, which is similar to that adopted in Australia in 1973, the tariff cut is implemented without warning. The second strategy is consistent with the current approach of phasing in tariff cuts according to a previously announced schedule. Under the third strategy the tariff cut is implemented several years after it is announced. We find that the long-run effects of the alternative tariff reduction strategies are similar, but that the adjustment paths are not. Our results suggest that if tariffs are to be reduced then it is preferable to implement the policy without warning. The results emphasise the point that the sooner tariffs are reduced the sooner will the allocative efficiency gains from doing so be realised.

JEL classification: D58, C68, E27, F13.

Keywords: industry protection, tariffs, allocative efficiency, com- parative-dynamic simulation, computable general equilibrium model, labour market adjustment, timing issues.

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