Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/225292
Authors: 
Rudsinske, Jonas F.
Year of Publication: 
2020
Series/Report no.: 
cege Discussion Papers 407
Abstract: 
I study welfare and distributional effects of import tariffs in a two-country asymmetric general oligopolistic equilibrium trade model. Tariffs have an anti-competitive effect that reduces labor demand because firms want to shorten supply. Unilaterally increasing the import tariff in absence of foreign retaliation raises domestic welfare at the foreign country's expense, but comes at the cost of favoring profit recipients as compared to workers, whose real wages fall. Only if initial symmetric tariffs are low, the tariff-increasing government could use its rising tariff revenue to neutralize the distributional effect or the negative effect on workers, an action the other country could never take because its tariff revenue declines. If supporting workers is the policy objective, tariffs do not appear to be a suitable tool under oligopoly and need to be accompanied by transfer payments or even profit taxation.
Subjects: 
Trade Policy
labor share
general oligopolistic equilibrium
labor demand
strategic trade
JEL: 
F13
E25
F12
J23
L13
Document Type: 
Working Paper

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