Econometrica: Nov, 1977, Volume 45, Issue 8

A Recommendation for a Better Tariff Structure

https://doi.org/0012-9682(197711)45:8<1859:ARFABT>2.0.CO;2-W
p. 1859-1869

Tatsuo Hatta

Consider a small country with a strictly convex production possibility set, where non-traded goods as well as traded goods are produced. Suppose that tariffs are the only causes of the distortions in this economy. In the present paper, we will prove that in this economy reduction of the highest tariff rate to the level of the second highest rate will improve welfare if (i) inferior goods do not exist, (ii) the good on which the highest tariff rate is imposed is substitutive to all the other goods both in consumption and in production, and (iii) the non-traded goods are substitutive to all the other goods both in consumption and in production.