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Tariffs, Time Preference, and the Current Account under Weakly Nonseparable Preferences
Author(s) -
Ikeda Shinsuke
Publication year - 2003
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00371
Subject(s) - economics , distortion (music) , sign (mathematics) , preference , welfare , tariff , order (exchange) , marginal utility , microeconomics , time preference , steady state (chemistry) , econometrics , international economics , mathematics , physics , market economy , chemistry , mathematical analysis , amplifier , optoelectronics , cmos , finance
Incorporating weakly nonseparable preferences into the familiar time–preference model, the author emphasizes a role of steady–state welfare changes in determining the effect of permanent tariffs on the current account. The effect consists of a welfare effect, due to steady–state welfare changes, which is negative (positive) when preferences toward imports are more (less) wealth–enhanced than toward exports; and a substitution effect, which occurs only with initial distortion. Even without initial distortion, a marginal tariff has a first–order welfare effect on the current account. Its sign does not depend on whether impatience is increasing or decreasing in wealth.