Grant W Gardner

TARIFFS, INTEREST-RATES, AND THE TRADE BALANCE IN THE WORLD-ECONOMY

Abstract A two-commodity intertemporal framework is used to show that, in contrast to the conventional wisdom, both permanent and temporary tariffs may worsen the trade balance of a large country. For a temporary tariff the key condition for this result is a low intertemporal elasticity of substitution in consumption. When a temporary tariff worsens the trade balance the world real interest rate must fall if the tariff-imposing country is running a deficit and rise if it is running a surplus. Temporary tariffs can only worsen the trade balance of a surplus country when international differences in tastes are important.

Tax Regimes, Tariff Revenues and Government Spending

This paper develops a model that describes the role of tariffs as a source of government revenue. The model takes a public finance perspective and treats as part of the optimum revenue-raising tax package, relating the behavior of tariff rates and revenues to observable macroeconomic variables such as income and government spending. Although the approach is quite general, the model is constructed to fit the stylized facts concerning the changing role of the tariff in U.S. history. It is shown that relative collection costs for tariffs and other forms of taxes interact with changes in macroeconomic variables to explain the regime shifts (qualitative changes in the relative importance of tariffs and other taxes) found in U.S. tariff history. Copyright 1992 by The London School of Economics and Political Science.

Money, prices, and the current account in a dual exchange rate regime

Abstract This paper examines the behavior of money, prices, and the current account in a dual exchange rate regime where all current account transactions take place at a pegged official rate and all capital account transactions occur at a freely floating financial rate. The adjustment of a small open economy to a monetary disturbance under this regime is compared to that found under unified fixed and flexible rates. The results concerning the behavior of the economy under dual rates are shown to apply also to an economy operating with fixed rates and controls on the international movement of capital.

The Effects of Trade-Balance-Triggered Tariffs

An intertemporal optimizing model of a small open economy is used to study the effects on the dynamics of real interest rates, consumption, and the trade balance of a policy where tariffs are regularly enacted in response to trade balance difficulties. Starting from a free trade equilibrium characterized by trade balance deficits during recessions and surpluses during booms, it is shown that trade-balance-triggered tariffs improve the trade balance during recessions and worsen it during booms. This result is due to the policys intertemporal substitution effects. The implications of investment spending for the effects of trade-balance-triggered tariffs are also discussed. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

THE ECONOMICS OF COUNTRY-SPECIFIC TARIFFS*

A three-country model of the world economy is used to show that, when effective, a country-specific tariff will have an impact on the world economy that is equivalent to the imposition of a uniform tariff plus a subsidy to the production of home importables in the favored country financed by a transfer from the home country. Lerners symmetry theorem and the optimum tariff problem are discussed. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

The choice of monetary policy instruments in an open economy

This paper examines the relationship between a central banks control of the money stock and its exchange-rate policy. It is shown that this relationship influences the central banks choice of the optimal policy instrument in the following ways. First, a policy of fixed exchange rates may significantly constrain a central banks choice of instruments or eliminate that choice entirely. Second, for the case of a flexible but managed exchange rate, there may often be a conflict between control of the money stock and control of the exchange rate. Hence, the central bank must be willing to accept some type of tradeoff between these two objectives.

Tax smoothing and tariff behavior in the United States

Abstract This paper develops and tests a public finance theory of tariff behavior. Tariffs are viewed as being part of the optimum revenue raising tax package so that tariff revenue is closely tied to government spending. A key implication of the theory is that tariff rate movements should be consistent with tax-smoothing behavior. The test focuses on the United States during the years 1869–1916. The results of the test support the theory.

Tariff behavior in five European countries

Abstract This paper examines the time series properties of average tariff rates for Denmark, France, Sweden, Switzerland, and the United Kingdom. For all five countries the tariff series contains a unit root. However, a complete description of the tariff rate series for each country suggests that tariff changes may have quite different effects on macroeconomic variables, such as the trade balance, in each of the five countries studied.

Currency substitution, money growth rules, and the interdependence of monetary policy

Abstract This paper examines the interdependence of national monetary policies under flexible exchange rates when national currencies are seen as substitutes for one another. It is shown that the efficacy of a constant monetary growth rule as a means of controlling a countrys price level depends on the policies of foreign central banks. These results are in contrast to those found under flexible exchange rates and no currency substitution. The role of monetary growth rules in a world of currency substitution is discussed.