Tit-for-Tat, Tariffs, and Time: A Dynamic Model of Trade Policy

Document Type

Article

Journal/Book Title/Conference

International Trade Journal

Volume

4

Publication Date

1989

First Page

167

Last Page

186

Abstract

The objective of this study is to examine the impact of a global protectionist response to a small country's tariff setting behavior. It is assumed that the small country's government seeks to maximize tariff revenues for the purpose of generating funds that can be used to subsidize an interest group in return for its political support. The main result is that if a small country were to seek to raise revenues from a tariff in an environment initially characterized by free trade, while it might be optimal for the country to levy a positive tariff initially, a “tit-for-tat” type response by trading partners would drive tariff levels down over time.

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